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When organizing a new business,
one of the most important decisions to be made is choosing the
structure of a business. Factors influencing your decision about
your business organization include:
Legal restrictions,
liabilities assumed, type of business operation, earnings
distribution, capital needs, number of employees, tax advantages or
disadvantages, length of business operation. The advantages and
disadvantages of sole proprietorship, partnership and corporation
are as following.
Sole Proprietorship
This is the
easiest and least costly way to
start a business. A sole proprietorship can be formed simply by
finding a location and opening the door for business. There are
likely to be fees to obtain business name registration, a fictitious
name certificate and other necessary licenses. Attorney's fees for
starting the business will be less than the other business forms
because less preparation of documents is required and the owner has
absolute authority over all business decisions.
Sole proprietors are in
complete control and may make decisions as they see fit within the
parameters of the law. Sole proprietors receive all income generated
by the business to keep or reinvest.
This solution is comparable to
the creation in France of an individual business in which the
individual trader will be indefinitely responsible. Sole proprietors
have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at
risk.
Individuals seeking sole
proprietorship may be at a disadvantage in raising funds and are
often limited to using funds from personal savings or consumer
loans.
Partnership
Partnership involves the association of two or several persons, who
have the quality of co-proprietorship, with the intention of carry
out activities aimed at achieving a lucrative goal. The associates
can conclude a "partnership agreement" that determines the
functional regulations of the partnership. Two types of
partnerships exist: a "general
partnership” and a “limited partnership.”
A general partnership can be
formed simply by an oral agreement between two or more persons, but
a legal partnership agreement drawn up by an attorney is highly
recommended.
Every associate of a "general partnership" participates in the
management and has the same rights, obligations, and power. Their
responsibility is unlimited as for the debts of the partnership and
creditors will be able to carry out garnishment acts on their
personal goods.
The "limited partnership" must
have at least one associate ("general partner") that is in charge of
the management and of which the responsibility is unlimited, as well
as associates ("limited partners") that do not take no active party
to the control and the direction of the partnership. Their
responsibility is limited according to their provision in capital.
Corporation
The corporate structure is usually the most complex and more costly
to organize than the other two business formations. Control depends
on stock ownership. Persons with the largest stock ownership control
the corporation instead of the total number of shareholders. With
control of stock shares or 51 percent of stock, a person or group is
able to make policy decisions. Control is exercised through regular
board of directors' meetings and annual stockholders' meetings.
Records must be kept to document decisions made by the board of
directors. Small, closely held corporations can operate more
informally, but record keeping cannot be eliminated entirely.
Officers of a corporation can be liable to stockholders for improper
actions. Liability is generally limited to stock ownership, except
where fraud is involved.
To get details about types
of business, please refer following site:
http://www.ss.ca.gov/business/filings.htm
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