Own your own business? Know what forms of business ownership is right for you

Posted December 16, 2008 by Bernz

If you’ve started a small business or home based business you’ll likely experience humble beginnings, however as your business grows you might want to also expand ownership. Let’s take a look at the types of business ownership options and what they mean for you as a business owner.

cogsSole Proprietorship (or proprietorship). This is a business owned by one individual. All you basically need to conduct business is a license issued by the state where the location of your business is. There are three main advantages of a sole proprietorship: 1) easy and inexpensive to start; 2) they are subject to very few government regulations; and 3) the income the business makes is not subject to corporate taxation.

Partnership. A partnership forms when two or more persons conduct a non-corporate business for profit. Such partnerships may be operated under the form of a verbal agreement or with the formality of a written contract. In either case, a partnership defines the way each partner will share the business’s loss and profits. For example in a limited liability partnership (LLP) or limited liability company (LLC), all partners have their potential losses limited to their investment.


A partnership business has the same advantages of a sole proprietorship with the exception that a partnership is taxed as only as a part of the partners’ personal incomes.

A corporation. This is created by a state. A corporation is completely separate from the owners and managers of the company. If you start a small business and it really takes off you’ll need to raise large sums of money for the expansion. For this reason starting forming a corporation makes sense. Other times corporations are formed after a long growing period. For instance a family owned business that may start one or two generations prior, or a business that started in the basement and grew over the years with new products and services.

The main advantages of forming a corporation are: No. 1, the separation between state and personal ownership means that when the owners die, the company lives on. In other words, the corporation has unlimited life. No.2, ownership interests can be divided into stock. No. 3, any losses are limited to the actual funds invested.

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