Pros & Cons of The 7 Forms of Business Ownership (Table)

Starting a business? There are a few different forms of business ownership to consider when starting up. No matter what you are going to offer, the first step is to start! The following table covers the basic business types depending on your industry. It is important to consider the characteristics of liability and tax exposure prior to jumping in.

The following is the highlight of each that stands out and a detailed table.

Sole Proprietorship

Pro: Complete control of all company decisions. This is great for companies that are at low risk for legal liability such as a digital goods marketing agency. Complete control is awarded to the owner/operator.

Con: All liability falls on the owner, leaving their assets vulnerable to attack. The owner is also responsible for everything from taking phone calls, performing the work, keeping books, and paying taxes. The load is a lot to handle when growth starts to take shape.

General Partnership

Pro: Brings together a group of ambitious people, promoting business success. This is amazing if you work well with like-minded people. The better talent that you are surrounded with can help cultivate the perfect environment for success.

Con: Business decisions, as well as profits, are split down the middle. Trust will go a long way when deciding to form a general partnership. Be sure to know your partner well before signing the dotted line.

Limited Liability Partnership (LLP)

Pro: Unlimited liability is split across the multiple owners, not just sole liability.

Con: One mistake or shortcoming by one owner can negatively impact the entire team.

Limited Liability Corporation (LLC)

This is one of the most common forms of business ownership. This protects personal assets among individual owner(s).

Corporation

Corporations are subjected to public trading options that shareholders could either benefit from or lose out on. One major con is corporations are double-taxed, the only form of business ownership where this applies.

Joint Venture

Joint ventures are good for sharing success. Through effect assets and efforts, the financial gain can be shared and enjoyed across the team.

Franchise

Company liabilities do not fall in the lap of the franchise owner. The owner must abide by the companies decisions relating to renovations, promotions and other marketing and business-related decisions. The franchise is branded and owned as a whole not by the franchise owner.

Characteristic	Sole Proprietorship	General Partnership	LLP	LLC	Corporation	Joint Venture	Franchise
Liability Exposure	Pro: Complete control of all company decisions   Con: All liability falls upon the owner. Personal assets become at risk	Pro: unlimited liability splits among multiple owners, not just sole liability   Con: One mistake by one of the owners impacts the other	Pro: Unlimited liability splits among multiple owners, not just sole liability   Con: One mistake by one of the owners impacts the other	Pro: Members are not liable for company debts   Con: Under special circumstances, owners can be subjected to unlimited liability	Pro: Limited liability, shareholders are not personally responsible for obligations of the corporation   Con: Shareholders lose investment money	Pro: Unlimited liability splits among multiple owners, not just sole liability   Con: One mistake by one of the owners impacts the other	Pro: Owner is not liable for company liabilities   Con: Owner has to abide to all the franchisers decisions such as renovations
Tax Exposure	Pro: Taxed once	Pro: Taxed once	Pro: Taxed Once	Pro: Taxed once	Pro: None   Con: Double tax	Pro: Taxed Once	Pro: Taxed Once   Con: Royalty and advertising fees in addition to income tax
Owners Relationship	Pro: Owner is his or her own boss   Con: Stress can overwhelm an individual when the business depends on their decisions and actions	Pro: Brings together a group of talented people, boosting business success   Con: Business decisions and profits are split	Pro: Partnership offers limited liability, easing tension among ownership   Con: Profits are spread amongst all members	Pro: Fair distribution of profits among business partners   Con: Liability is not inherited by one sole member	Pro: Management may focus more on career development than company gain   Con: Shareholders can easily take more interest in profits than employee well-being	Pro: Establish good relationships with other successful owners and partners   Con: Profits are spread amongst owners	Pro: Opportunity to run an established business as an owner   Con: Products and regulations rules are handed down from corporate
Purpose of Form	Gives individuals the opportunity to own and operate their own business	Combines the ideas and skillsets of multiple individuals to maximize success	Create a partnership while limiting liability	To limit liability among members, while offering fair profit distribution amongst the partnership.	Offer portions of ownership to shareholders	To explore financial gain through combining assets and efforts	To offer potential owners a chance to own a successful, well-established business
Example	A small home healthcare provider	Small, middle or large-sized medical practice	Small, middle or large-sized Accounting firm	Mid-sized product manufacturer	Large clothing manufacturer	Large vehicle retailer	Large fast-food company

Ronnie Lee Roberts II is a brand and marketing super fan and owner & operator of Roberts Consulting Firm. He writes about marketing, leadership, and business.