There are three most important factors to consider before choosing form of ownership for your company,
- Company Size – how big you want to grow your company
- Tax Consideration – avoid unnecessary cost
- Risk and Return – how much risk you want to take and how much return you expect to get also help you to determine your company form of ownership
Advantages of a Sole Proprietorship
- Profit Incentive
- Total Decision-Making Authority
- No Special Legal Restrictions
- Easy to Discontinue
Disadvantages of a Sole Proprietorship
- Unlimited Personal Liability
- Limited Skills and Capabilities of the Sole Owner
- Limited Access to Capital
- Lack of Continuity for the Business
A corporation is a separate legal entity apart from its owners and may engage in business, issue contracts, sue and be sued and pay taxes. The Owners of a corporation hold stock in the corporation. Each share of stock represents a percentage of ownership. The actual business of the corporation is conducted by the directors and officers of the corporation.
Steps to incorporate a business,
- select a local agent
- select the corporate name and check on the availability
- prepare the Certificate of Incorporation
Even though LLC and S-corp are similar in many ways, but they still have few differences between each other.
- LLC is easy to form and maintain without extensive records
- LLC tends to have a very small number of owners
- LLC can not take the company public
- Restrictions on transfer of ownership
- LLC may need to pay double tax like C-corp
This post is short, yet ON POINT! Great explanation of the advantages and disadvantages. If you could see yourself open a business today, how would you set it up and why?
Clear and straight to the point, I like it!
Thank you Imran!
Do you think your first step to incorporate a business is required in all situations?
No. For most states, it is different. For example, in New York State, you don’t have to go through that.
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