What is a sole proprietorship?
A sole proprietorship may be the simplest type of business you can create. You do not need to file any papers with the state to become a sole proprietorship. In a sole proprietorship, one person develops the business plan and forms, owns, manages, and controls the business. This means that all profits go directly to you, but you are also responsible for all losses. Benefits of a sole proprietorship include ease of administration, simplicity of decision-making, and flexibility. Disadvantages include unlimited liability if your business is sued or has financial problems.
What is a general partnership?
A partnership is a company owned by two or more people. In such a business structure, all partners provide funding to start the company and all are responsible for running it. Sometimes partners enter into partnership agreements in which each person assumes a specific role within the company.
General partnerships are easy to start. Normally, you don’t need to file any documents with the state. Less capital is often required as multiple people contribute to the initial cost. Like a sole proprietorship, a general partnership comes with unlimited liability for business obligations. Partnerships can also get into trouble when partners do not work together effectively. Learn how to form general partnerships.
What is a non-profit corporation?
A not-for-profit corporation is an entity established for the public benefit in some way. Both private foundations and community foundations can fall under the not-for-profit umbrella. Nonprofit corporations are exempt from federal income tax, but only if they successfully apply for 501(c)(3) status with the IRS.
The tax-exempt status of non-profit corporations is a distinct advantage of this type of business structure, and the founders and directors of non-profit corporations also enjoy limited liability for business debts. Drawbacks include the large amount of paperwork required to start and run a nonprofit, the high costs, and the ongoing public scrutiny of finances and spending.