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Last updated: Jun. 12, 2013
You have your business up and running, perhaps as a sole proprietorship or a partnership and are now seeing some growth and profit.
You may be wondering if you should now incorporate your business.
Advantages and Disadvantages of Various
Business Structures
The following is a list of possible advantages and disadvantages of the most common forms of business structure.
Sole Proprietorship
A sole proprietorship is a business owned by one person, called a “proprietor.”
Advantages
- Simplest and least expensive to set up
- Minimal registration requirements
- Owner in direct control
- Possible tax benefits (losses can be applied against other income of proprietor)
Disadvantages
- Owner assumes all risk of business; responsible for payment of all business debts. Creditors can seize your personal assets.
- Lack of continuity (ownership not transferable)
- Difficult to raise capital
- Possible tax disadvantages (profits must be added to personal income)
Partnership
Business owned by two or more individuals or corporations.
Advantages
- Easy to set up and very flexible
- Limited regulation
- Partners provide sources of additional capital and skills
Disadvantages
- Partners assume personal liability for debts of business
- If disagreements arise, business can suffer
- More complex record keeping and tax returns
Corporation
A separate legal entity which can enter into contracts and own property separately and distinctly from its owners who are the shareholders.
Advantages
- Limited liability (generally limited to individual’s personal investment in the business)
- Continuous existence (ownership transferable)
- Easier to raise capital (i.e. money for the business can be raised by selling shares)
- Possible tax advantages
Disadvantages
- More expensive and complicated to set up and maintain
- Extensive record keeping and complex taxation
- Closely regulated
Still not sure which business structure is right for you?
All FBC Members receive free business consultation as part of membership.
Contact us to learn more about your specific situation.
