Advantages and Disadvantages of Sole Proprietorships, Partnerships, and Corporations

As for a partnership disadvantages it’s possible to say that running business together means to be responsible for each other’s actions as well as all debts and errors made by the other partners. One cannot take decision by himself and he should always discuss it with his partners, being open for compromises and stable providing arguments (Robinson, 1999). All the benefits gotten from running the business are shared between remembers and the question how to evaluate other partner’s efforts and time in operating it can rise. As a partnership is created for long time, the situation can change and personal disagreement can influence business relationships between partners as well. Partnership life also depends on partner’s interest or his presence. It can end up because of absence of interest or partner’s death. Moreover, this type of running business cannot introvert into a larger form (Merrifield, 2005).

Corporation

On contrary to proprietorship or a partnership a corporation is a type of business running which is reviewed by law as a separate legal entity with its own powers, responsibilities and obligations (Carpenter, 1997). Stockholders have limited responsibility and they are not involved into corporation credits and obligations.

A corporation life does not depend on interest or presence of its owner, it will exist in a case he dies, sells or transfer his stocks what, in effect, is very easy to do. It’s also possible to sale part of stocks to increase funds of corporation (Balmer, 1999). Corporation also establishes insurance and retirement funds. It has centralized management that may remain on its post even if a business is sold.

The essential disadvantage of this type of business running is the fact that profits are taxed two times as income of the corporation and as a stockholders’ personal income. Double taxation can be reduced with the help of salaries or other business operating expenses which are considered to be business expenses (Anbalagan, 1996). Double taxation was and remains the main source of tax revenues in most countries.

References

Anbalagan, R., Sharma, S., Raghuvanshi, T., Appelbaum, E., Katz, E. (1996). Corporate taxation, incumbency advantage and entry. European Economic Review, 40(9), 1817-1828.

Balmer, J.M.T., Gray, E. (1999). Corporate identity and corporate communications: creating a competitive advantage. Corporate Communications: An International Journal, 4(4), 171-177.

Carpenter, C. (1997). Corporate Communications. Journal of Vascular Access Devices, 2(4), 31-32.

Madura, J. (2006). Introduction to business. P. 160.

Matlin, S. (2001). Partnership Challenges. Compare, 31(1), 11-19.

Merrifield, B. (2005). Limited Liability Partnerships. Research-Technology Management, 48(5), 16-19.

Piper, M. (2007). Surprisingly Simple: Independent Contractor, Sole Proprietor, and LLC Taxes Explained in 100 Pages or Less. p. 56.

Robinson, R.J. (1999). Partnership. Bangladesh, 6(15), 1-6.

Sitarz, D. (2005). Sole Proprietorship: Small Business Start-up Kit. p. 39.