Now that you have come to the end of this module, you should understand that there is a range of possibilities for structuring, starting, and growing a business. Each choice has its advantages and disadvantages, and there is no single set of choices that will accommodate all businesses. Just knowing that there are choices to be made and a variety of possible paths is critical to the success of any business venture—large or small.
In this module you learned about the various legal forms for a business and the advantages and disadvantages of each. The following are key takeaways from this module:
Choosing an Organizational Type
Sole proprietorship, partnerships, corporations, and hybrids (LLC, LLP) are all possible options for the legal formation of a business. Each structure carries risks and rewards, costs and benefits. Which form of business ownership is best for an individual depends not only upon the nature of the business opportunity but also the level of personal exposure to risk the owner is willing to accept.
Sole proprietorships are the simplest and most common legal structure for a business. These businesses are owned and run by one person.
A partnership is a single business in which two or more people share ownership. There are two general types of partnership arrangements: general partnerships and limited partnerships.
Although not the most common form of business ownership, corporations account for the majority of the revenue from business in the U.S. They are also the most complex type of organization to start and maintain. Types of corporations include C corporations, S corporations, and B corporations.
Hybrid Forms of Ownership
Fortunately there are options that enable the business owner to take advantage of limited personal liability and the benefits of partnership or corporate organization. These include the limited liability corporation (LLC) and limited liability partnership (LLP). Which type of ownership an owner selects will largely be determined by the size, objectives, and vision for the business.
Let’s take a look at how these different forms of ownership compare to one another.
|Sole Proprietorship||Partnership||LLC||LLP||Corporation||S Corporation|
|Owner(s)||1 sole proprietor||2 or more partners||1 or more members||2 or more partners||1 or more shareholders||1 or more shareholders|
|Sole authority for decisions||Yes||No||No*
*Yes, if only one member
*Yes, if only one shareholder
*Yes, if only one shareholder
|Easy access to expertise||No||Somewhat||Somewhat||Somewhat||Yes||Yes|
|Easy access to capital||No||Somewhat||Somewhat||Somewhat||Yes||Yes|
|Limited legal liability||No||No||Yes||Yes||Yes||Yes|
|Easy transfer of ownership||No||No||No||No||Yes||Yes|
For aspiring business owners who do not have the time, vision, or resources to “start from scratch,” franchising is a viable alternative for business ownership. Everyone is familiar with franchises—many industries such as fast food are almost wholly comprised of franchises. As appealing as this may seem, there are still risks to franchising for both the franchisor and franchisee.
Mergers and Acquisitions
One of the quickest ways for a business to expand into other markets or products lines is either to merge or acquire/purchase another company. Although this is common in today’s business environment, there are still many complex factors to consider before deciding whether a merger or acquisition is the optimal solution.