Many an business person has bitten the money mud by investment in a very business venture while not doing the requisite analysis beforehand – they need sealed their fate by selecting a business model not appropriate their business acumen or money resources, or lack therefrom. choosing what legal kind your venture goes to require can spell the distinction once you expertise problem in your business afterward.
A businessman can choose from different business formsincluding sole or single proprietorship, partnership or a corporation. Before you embark on your own business endeavor and choose among the business types mentioned above, you must first educate yourself on the definitions, characteristics, advantages and disadvantages of each.
Sole proprietorship is the easiest business venture to put up because you only have yourself to disagree with. This means you can go ahead with whatever plans you have and you can implement them anytime. It means that when yourventure succeeds then you will reap all the financial rewards of your business. But of course, this option’s biggest benefit is also its biggest drawback as you would be entirelyculpable for the losses in the event the business fails.
If your business venture is to involve more starting funds and requires more expertise, you would probably want toform a partnership. The name of the game is complementing each other – you and your partner are unique individuals who have your own skills, personalities and experience that you could use to focus on different aspects of the business you are running. Whether your partnership business thrives or takes a dive, you and your partner will be splitting in the profits or losses in this form of business. Even if you had invested a significant amount of money in the business, creditors may still want to get from your personal coffers if your business is in the red and they are trying to chase payment for a business expense or loan.
The last model we mentioned above is the corporation, and many believe it has some distinct advantages. Incorporating your business would mean bringing in other people to the business. This would require that a quorum would have to be reached among the Board of Directors before any business decision is made. The most evident advantage a corporation has over other business types is that it is potentially the most lucrative business model.
A corporation is a distinct legal entity from its incorporators and shareholders so that in case the business incurs debts, the share or stockholders will only answer for the debts depending on the shares they have in the corporation. You probably are familiar with the theory of limited liability, which we had just illustrated. The creditors will no longer have any right to seek payment from the personal finances of the stockholders.
Even if one starts up his business as a sole proprietorship, he always has the option to incorporate the business later on in its lifespan. The sacrifices in incorporating a business will be all worth it, even if it means a ton of papers to fill out and a lot of requirements and instructions to follow in order for the incorporation to be a success.