Sole Proprietor vs. A Corporation, Essay Example

In relation to starting a new business venture, the advantages related to sole proprietorship or being a single business owner includes the lack of creation costs and autonomy; some disadvantages includes the inability to bring others into the business, raising working capital, and tax planning. Sole ownership also involves unlimited liability which makes the owner liable for all debts and obligations. Sole proprietorship is also rather informal, meaning that the business owner can operate his/her business as they see fit. Also, the business cannot legally be called a company because only one individual runs the business unless he/she enters into a partnership. This also applies to management, meaning that a sole owner can manage and operate his/her business without having to be concerned about how a partner feels it should be run.

Also, the life of a business or how long it exists is solely up to the single owner. If he/she wishes to operate the business for a short period of time or for many years, this is totally up to the sole business owner who can end the business at his/her discretion. As to liquidity, depending on the complexities of the business, liquidating the business can be as easy as selling off products and the building in which the business operates, unless the business is online in which case the website could be sold to the highest bidder. As to taxes, all of the income generated by the business is seen as ordinary personal income and is subject to various income tax rates and a high rate of taxation. Thus, for the sole proprietor, being able to handle taxes without falling behind can make the difference between business success and failure (Lau & Johnson, 2011, pp. 347-354).

In contrast to sole proprietorship, some of the advantages of a corporation includes being a separate legal entity that lies outside of its owners, that it possesses continuity regardless of its owners, and is undisturbed by changes related to shareholders. One of the most important disadvantages is that a corporation must comply with corporate laws as designed by the states in which the corporation exists and operates. They must also be chartered via obtaining permission from state agencies to start up a corporation. Depending on the state, this process can be extremely complex, time-consuming, and expensive.

As to liability, corporations have limited liability, especially related to shareholders who can lose their investments in a corporation is the business cannot pay its debts or live up to its obligations. Many times, a corporation forms subsidiaries or outside business entities which provides the parent company with limited liability and special treatment related to taxes. Corporations are also very formal organizations with a tier of managers, administrators, supervisors, and common employees. They are also for the most part publicly traded via the value of their shares on the stock market. Finances can come from a wide variety of sources, such as individuals and state and federal government entities in the form of loans.

Management-wise, corporations are often quite difficult to manage, due in part to the complexities of the business from which it makes a profit. They also require attorneys and accountants and annual maintenance procedures, not to mention paying annual fees for licenses and franchises. The life of a corporation can be either limited or perpetual, meaning that the owners and stakeholders can decide to remain as a corporation for several years or for decades. As to liquidity, breaking up or liquidating a corporation as opposed to sole proprietorship is extremely complex and can take years to accomplish, especially if the corporation operates on a global scale and has millions of shareholders. Lastly, corporations must face a barrage of various types of taxes, such as double taxation which involves being a separate legal entity as well as a business, federal, state, and local taxes, and taxes on dividends paid to shareholders (Lau & Johnson, 2011, pp. 356-363).

References

Lau, T., and Johnson, L. (2011). The Legal and Ethical Environment of Business. The Saylor Foundation. Retrieved from http://www.saylor.org/books