Create a compare and contrast chart of the following business structures:
sole proprietorship
partnership
limited liability corporation
Include at least three advantages and disadvantages of each structure, including the legal implications of each ownership structure.
Below is a compare and contrast chart for Sole Proprietorship, Partnership, and Limited Liability Corporation (LLC) including advantages, disadvantages, and legal implications:
| Aspect | Sole Proprietorship | Partnership | Limited Liability Corporation (LLC) |
|------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------|-----------------------------------------------------------------------------------|
| Definition | A business owned and run by one individual with no distinction between the business and the owner. | A business owned and operated by two or more individuals who share management and profits. | A hybrid business structure that provides the limited liability features of a corporation with the tax efficiencies and operational flexibility of a partnership. |
| Formation | Simplest and requires no formal action. The individual just starts doing business. | Involves a partnership agreement (may be written, oral, or implied). A written agreement is recommended. | Requires filing articles of organization with the state and creating an operating agreement. |
| Legal entity | Not separate from the owner. The owner is the business. | Generally, treated as separate from the owners, although each partner is personally liable for business debts. | Separate legal entity from its owners. Owners are not personally liable for business debts. |
| Advantages | Sole Proprietorship | Partnership | Limited Liability Corporation (LLC) |
|------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------|-----------------------------------------------------------------------------------|
| 1. Control | Total control over all decisions; owner makes all business decisions. | Shared control among partners, allows for collaborative decision-making. | Members have flexibility in structuring the company and distributing profits. |
| 2. Taxes | Owner pays personal income tax on profits; avoids corporate taxation. | Pass-through taxation - profits are reported on partners' personal tax returns. | Pass-through taxation usually applies, avoiding double taxation of a corporation. |
| 3. Simplicity and Cost | Easiest and least expensive business structure to establish and maintain. | Relatively easy to form, though more complex than a sole proprietorship. | More complex to set up than a sole proprietorship or partnership, but provides greater protection and flexibility. |
| Disadvantages | Sole Proprietorship | Partnership | Limited Liability Corporation (LLC) |
|------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------|-----------------------------------------------------------------------------------|
| 1. Liability | Unlimited personal liability; owner is responsible for all debts and legal actions against the business. | Joint and several liability; partners are personally liable for business debts, including those incurred by other partners. | Limited personal liability, but compliance with regulations is required to maintain this protection. |
| 2. Funding | Difficulty in raising capital; reliant on personal funds and loans. | Better access to funding than sole proprietorship, but may still face limits. | Easier access to capital than sole or partnerships, can include investors who are not active in the business. |
| 3. Permanence | Business is dependent on the owner's ability to work; may cease to exist upon the owner's death. | Stability can be affected by changes in partnership (e.g., death of a partner), unless there's an agreement in place. | Typically, more continuity and can survive the departure of members, depending on state laws and the LLC's operating agreement. |
| Legal Implications | Sole Proprietorship | Partnership | Limited Liability Corporation (LLC) |
|------------------------|----------------------------------------------------------------------|--------------------------------------------------------------------|-----------------------------------------------------------------------------------|
| Liability Risk | Owner can lose personal assets in a lawsuit or bankruptcy. | Partners can lose personal assets; partnership interests may be seized. | Members’ personal assets are generally protected; the LLC itself is liable. |
| Tax Filings | Owner files Schedule C with personal tax return. | Partners file an informational partnership tax return (Form 1065) and individual Schedule K-1 forms. | Typically files an informational return; members pay taxes on their share of profits on personal tax returns. |
| Succession and Transferability | Difficult as the business is tied to one individual. Sale of the business requires new owner to establish their own proprietorship. | Transfer of ownership interests may be restricted by partnership agreement; can be complex. | Easier to transfer ownership interests, subject to operating agreement conditions. |
Remember, specific details may vary according to different jurisdictions and the laws of the country or state where the business is established. Always consult with a legal advisor for precise guidance tailored to the specific business situation.