Business Types: Analysis. Definitions, Specifics, Benefits, and Disadvantages of Key Business Types

Sole Proprietorship

Format

Usually labeled as the most common type of entrepreneur, a sole proprietorship is “an unincorporated business owned by one person” (Beatty and Samuelson 485). A sole proprietor may also file for a d/b/a (“doing business as” (Beatty and Samuelson 485)), which means that the owner of the company in question may register their business under an entirely different name. The significance of the d/b/a lies in the liabilities, which the owner of the entrepreneurship acquires when filing a d/b/a; specifically, the fact that the owner of the company is legally liable for its every single debt must be mentioned.

Key Elements

As a rule, the establishment of a sole proprietorship only requires that there should be the leader of the business and that no other partners should be involved (Beatty and Samuelson 485).

Pros and Cons

The responsibility, which the owner bears, can be viewed as the weakest aspect of the sole proprietorship. According to U.S. law, turshiphe leader of a sole proprietorship is legally liable for every single debt of the business (Beatty and Samuelson 485). Paying a personal income tax on the company’s profits can also be considered rather negative characteristics of the specified type of organization. Nevertheless, a sole proprietorship has its benefits as well; the fact that the company’s leader does not need to take any formal steps in order to establish their organization (Beatty and Samuelson 485) is the key one.

Partnership

Format

A partnership is usually identified as the cooperation of two or more businesses, which share management, profit, and losses (Beatty and Samuelson 499). A partnership used to be managed by common law; however, numerous inconsistencies in management led to the development of the Uniform Partnership Act in 1914 (Beatty and Samuelson 497). The UPA is traditionally defined as the Act, which declares that partnerships should be governed by the U. S. States (Beatty and Samuelson 497).The concept of fiduciary duty, which compels the shareholder to act in the interests of all the parties involved, however, balances the above-mentioned issue out, therefore, making the existence of a partnership [possible. Among the key types of partnerships, a Limited Liability Partnership is singled out. As follows from the title of the partnership, an LLP is the type of partnership, where the stakeholders have limited liabilities (Beatty and Samuelson 497). A Limited Liability Limited Partnership, in its turn, is a comparatively new addition to the overall list of partnership types. It presupposes that in an LLLP, even the general partners are not liable for the company’s losses, whereas in an LLP, general partners are as opposed to individual partners (Beatty and Samuelson 501).

Key Elements

A partnership, which is also often called a “general partnership” (Beatty and Samuelson 497) is an unincorporated organization, which involves at least two entrepreneurs. The latter, in their turn, have to be identified as the owners of a business for profit. Apart from traditional partnerships, joint ventures can be found within the global market. These are traditionally viewed as “partnership for a limited purpose” (Beatty and Samuelson 502).A partnership may also occur as a transfer of ownership; in this case, however, “a partner only has the right to transfer the value of the partnership” (Beatty and Samuelson 499) instead of the right to be a partner. Flow-thru taxation, which is an integral part of a partnership, can be viewed as both a positive addition to the company’s design and a negative one. While relieving the company owner of some of the taxes, it does not have an established set of taxation principles; as a result, the stakeholders risk becoming the victims of financial fraud. Specifically, the lack of data on the distributive share allocation deserves to be listed among the key risk factors. In case no formal agreement has been signed by the parties involved, a partnership by estoppel is formed.

Pros and Cons

Creating a partnership means sharing the existing liabilities; as a result, the key risks can be split among the partners. In addition, the fact that partnerships are not eligible to taxpaying (Beatty and Samuelson 497) makes the given type of an organization rather favorable for most business owners. It should be noted, though, that the leaders of a partnership are liable for negligence (Beatty and Samuelson 498).

Corporation

Format

According to the official definition, a corporation is the organization that presupposes a cooperation of several companies (Beatty and Samuelson 486). The specified type of entrepreneurship has been known as the dominant one in the global market mainly because it has been used widely for the longest time compared to the rest (Beatty and Samuelson 486). As a rule, regular corporations, close corporations (a synonym for small corporations), C corporations (the ones avoiding double taxation (Beatty and Samuelson 489)) and S corporations (the ones being in favorable tax conditions) are identified. Last, but definitely not least, Professional Corporations (PCs) is known for providing liability protection to its partners (Beatty and Samuelson 502).

Key Elements

Logistics can be viewed as the key problem of running a corporation. Seeing that “the cost of establishing a corporation includes legal and filing fees” (Beatty and Samuelson 487), it is essential that the financial strategy, as well as the in- and outbound logistics, should be devised properly. A promoter, who is supposed to solicit people for investing money into the enterprise (Beatty and Samuelson 486), is an essential part of a corporation. The incorporator, in their turn, holds the charter and signs the article when a corporation is formed (Beatty and Samuelson 486). Another essential element of a corporation, its purpose clause spells out the purpose of the entrepreneurship’s existence. It is required by law that a corporation should have meetings and minutes, as well as report on the outcomes of the latter two. Thus, the corporation’s financial activities are traced.

Shareholders are another part of the corporation’s framework. They are defined as the people or institutions that are in possession of a certain part of the company’s stocks and shares (Beatty and Samuelson 501). Stocks, in their turn, are the financial assets of an organization. The stockholders are represented by a director, and the rest of the employees are referred to as officers.

The principle of the business judgement rule, which presupposes that the court always defers to the corporate executives, is also attributed to corporations quite often (Beatty and Samuelson 502).

Pros and Cons

Seeing that corporations are legally liable to pay taxes, they can be viewed as financially burdensome. However, the fact that the so-called “S (small) corporations” receive favorable tax treatment (Beatty and Samuelson 488) can be considered an advantage of the specified form of an organization.

In addition, the duration of corporations which is limitless according to the U.S. state law, and the fact that the corporation stocks can be bought and sold, therefore, promoting transferability of interests (Beatty and Samuelson 486), can be considered a major advantage. Finally, a corporation can only be made liable for its own negligence as opposed to the actions of others.

The flexibility, which federal statutes offer the owners of corporations, in their turn, can be viewed as a major privilege. Specifically, the fact that corporations can be entirely independent (Beatty and Samuelson 488) is obviously a huge advantage for the owners thereof.

Limited Liability Company

Format

The Limited Liability Company, also known as LLC, is a type of entrepreneurship, which “offers the limited liability of a corporation and a tax status of a partnership” (Beatty and Samuelson 490). The so-called “socially conscious organizations” can be viewed as a form of LLC that was created for nonprofit (charity) purposes (Beatty and Samuelson 496).

Key Elements

The creation of an LLC requires that a charter and an operating agreement, preferably a personalized one, should be provided (Beatty and Samuelson 491). Although LLC is often compared to an S Corporation, there are several key differences between the two. While LLCs are supposed to pay self-employment taxes, S Corporations are not. In addition, the owners of an LLC are viewed as members, whereas in an S Corporation, they are considered shareholders.

Pros and Cons

The flexibility of the given type of an organization can be viewed its key asset. Not only does its flexibility allow an LLC to “have members that are corporations, partnerships, or nonregistered aliens” (Beatty and Samuelson 492) as its partners and key stakeholders, but also to incorporate different kinds of stocks into their design (Beatty and Samuelson 492).

On the other hand, LLCs area comparatively new addition to the overall array of organizational entities, which means that their efficacy is yet to be tested (Beatty and Samuelson 490), not to mention the fact that their body of law is still not quite clear (Beatty and Samuelson 494). Moreover, the members of the organization being not legally liable for the losses that the company takes can be considered a certain flaw of the LLC design. Finally, once going public, an LLC loses its key financial advantages, which makes it quite pointless as a publically traded company.

Franchise

Format

The phenomenon of a franchise is traditionally identified as the entrepreneurship model based on the use of a specific trademark (Beatty and Samuelson 503). Though being a comparatively recent addition to the set of corporation types, it has already gained wide recognition, as it helps propel companies to the top of the target market. It is quite peculiar that a franchise is technically not a separate form of entrepreneurship but, rather, a mix thereof and “an important form of entrepreneurs” (Beatty and Samuelson 503).

Key Elements

The FTC rule on franchises claims that future franchisers are supposed to be provided with the information concerning the risks and liabilities associated with the specified entrepreneurship type. In addition, a franchise disclosure document, or an FDD, must be provided to the people buying the company.

Pros and Cons

The necessity to provide a variety of documents related to the company’s operations in order to prove its feasibility as a legal entity can be considered a major impediment to the introduction of the company to the target market. In addition, acquiring a franchise may turn out to be very expensive. As far as the benefits of a franchise are concerned, it helps launch the company’s brand product into the target market successfully, therefore, making the firm competitive in the latter.

Hence, franchises can be viewed as the best option for a developing company to evolve into. Since franchises are “a compromise between starting one’s own business as an entrepreneur and working for someone else as a employee” (Beatty and Samuelson 503), it can be considered the most favorable form of organizations.

Reference

Beatty, Jefrey F. and Susan S. Samuelson. Legal Environment. 5th ed. Stanford, CT: Cengage Learning, 2012. Print.

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NerdyTom. "Business Types: Analysis. Definitions, Specifics, Benefits, and Disadvantages of Key Business Types." April 14, 2022. https://nerdytom.com/business-types-analysis-definitions-specifics-benefits-and-disadvantages-of-key-business-types/.

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NerdyTom. 2022. "Business Types: Analysis. Definitions, Specifics, Benefits, and Disadvantages of Key Business Types." April 14, 2022. https://nerdytom.com/business-types-analysis-definitions-specifics-benefits-and-disadvantages-of-key-business-types/.

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NerdyTom. (2022) 'Business Types: Analysis. Definitions, Specifics, Benefits, and Disadvantages of Key Business Types'. 14 April.

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