The 4 Major Business Organization Forms

The 4 Major Business Organization Forms

The business organization form you choose will affect multiple factors on how your business will grow, so making sure you understand and are well-informed about the advantages and disadvantages of each form is essential and crucial to how your business will succeed in the future.


Sole Proprietorship is the most commonly used business ownership. This is a business that is usually run for personal benefits. The existence of this business is not separated from the owner since all earnings and losses are taxed against their personal income tax return hence giving the owner full control over the business operations. This type of ownership allows owners to total control when running the establishment and only require very few requirements, which is usually only a business license. There is also no contrast between both the owner’s personal and business gains and the equity is only restricted to the owner’s personal assets.


There are two types of Partnership, the general partnership, and the limited partnership. Both the owners invest their resources to the establishment and both are totally liable to the business debts in General Partnership. Even if the owners finance a little into the partnership, both are still potentially in charge of the debts. This partnership does not need a formal agreement and can either be verbal or insinuated between the two owners. However, limited partnerships need a formal binding arrangement of the certificate of partnership that the two business owners must file with the state. This only allows the business partners to control their own accountability for the debts based on their part and investment. Both partnerships provide more capital for the business since both are shared resources. Both owners share the total profits of the business. Partnership is also inexpensive to establish may it be formal or informal. Although, selling the establishment is quite difficult since it requires finding a new partner and the partnership is only terminated when any of the owners involved decides to forfeit it.


Corporations operate as a separate, legal business lead by an elected board of directors. This business has individual institutions and is viewed as a legal entity for tax purposes. The profits gained by the business is taxed as the _personal income_ of the establishment than any income that is divided to the stockholders as the earnings are taxed to each one of them as personal income. A corporation can limit the liabilities of the establishment debts or losses. Both the income and loss of the corporation as well as the personal assets can not be seized to be reimbursed for business debts. But operating a corporation is very costly since it requires complex paperwork and the income is to be taxed twice.


A Limited Liability Company or LLC provides business owners with limited responsibility while delivering some of the income benefits of a partnership and a corporation. This type of organization limits the liability of the owners any debts or losses and the profits are divided and given to each of the business owners without double-taxation. Even so, ownership is restricted by some state laws. Agreements between the owners must be complex and comprehensive. Starting an LLC also requires a higher cost due to some legal charges.

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