Podcast
Questions and Answers
In which business structure are partners personally liable for debts and obligations?
Which business structure is a separate legal entity from its owners?
Which business structure is the simplest form with fewer formalities and requirements?
In which business structure can owners raise capital through stock sales?
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Which business structure offers both personal liability protection and avoids corporate income taxes?
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When might a small startup opt for a partnership business structure?
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Study Notes
Business Structures
Business structures refer to the legal forms under which companies operate. These structures dictate how they will be taxed, their operations, ownership, liabilities, and other aspects. There are four main types of business structures:
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Sole Proprietorship: This is the simplest form of business where one person owns and operates it. It has fewer formalities and requirements compared to other structures. However, the owner is personally responsible for all debts and obligations.
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Partnership: Two or more people enter into this structure where each partner shares profits and losses. Like sole proprietorships, partners have personal liability.
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Corporations: Incorporated businesses are separate legal entities from their owners. They can raise capital through stock sales, enjoy limited liability protection, and certain tax benefits due to double taxation.
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Limited Liability Companies (LLC): Similar to corporations, LLCs offer personal liability protection. Unlike corporations, they don't face the same corporate income taxes.
Each type has its advantages and disadvantages depending on various factors such as funding needs, tax situations, personal liability preferences, life cycle stage, etc. For instance, a small startup might opt for a partnership if they expect strong growth since they have little taxable income now. On the other hand, a corporation could make sense when seeking outside investment.
Understanding these structures helps entrepreneurs choose the most suitable model based on their specific goals and circumstances.
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Description
Explore the main types of business structures including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Learn about the key characteristics, advantages, and disadvantages of each structure to help determine the most suitable model for your business goals.
