Different Types of Business Formation Essay Example | Topics and Well Written Essays - 500 words

Different Types of Business Formation - Essay Example Partnerships involve shared formation and ownership of a business by more than one individual. This business formation has several advantages, including more diverse sources of capital than sole proprietorship, ease of formation and management, and the sharing of responsibilities and combination of the partners’ complimentary skills (Spadaccini, 2013). However, partnerships also have disadvantages such as sharing of profits compared to sole proprietorship, unlimited liability, and taxation of partners as single entities in individual profit share. In the latter case, the partners are required to file tax reports on their share of the profits in individual income tax returns. In addition, partners are legally inseparable from the business and are therefore personally liable for the business’ obligations and can be pursued personally by creditors; while partners are also legally and personally liable for transactions made by one partner (Spadaccini, 2013). Corporations are owned by shareholders as independent legal entities. They have several advantages including the business’ ability to raise more capital via share offers, limited shareholder liability for business-incurred debts, and the ability to continue operations if the original owners leave the business (Mancuso, 2015). The corporation’s creditors cannot acquire the shareholders’ personal assets due to this limited liability, with shareholders only losing their investment in the business in form of the corporation’s assets.