Assignment on Sole proprietorship vs Corporation

While starting business in any kind of retailing or trading the first decision made by owner is to decide that in which kind of business he will work. The business entity is based on how much area. This decision is most likely taken by the owner before the registration of the business. In this report we will discuss both types of business such as sole proprietorship and corporation with its advantage and disadvantages and best suggestion which should be adopted by the business entity.

Sole proprietorship

A sole proprietorship is the most common and easy form of business which is adopted by the people from very initial. In other countries and United States, it considered easiest form of the business. It is considered easy form of business as it does not required different formalities such as registration and deed etc. as all the fact are related to only one person who is owner himself (Crusto, 2001).

Corporation of Sole proprietorship vs Corporation

A corporation is an entity which is considered to run large size company in the business. It is most likely business unit which is owned by investors and shareholders. The management of the corporation is based on the board of directors which are responsible to run the whole business. It requires legal documentation should be done by the promoters of the organization as it could not be formed without fulfilling requirements of the registrar (Allen, 2017).

Pros and cons of sole proprietorship

Both business ownership are used for the purpose of earning profit and decided by the owners which ownership is suitable for them.  For this purpose that to find which business ownership is reliable there are discussion upon pros and cons of both form of business. The advantages of sole proprietorship are explained below:

·         Easy formation of Sole proprietorship vs Corporation

The first benefit of sole proprietorship is to form business is not a difficult task as it does not required any kind of legal documentation for registration. When owner feel he has enough sources to establish business he could start his business.

·         Limited capital of Sole proprietorship vs Corporation

There is no need a huge amount of capital while working in sole proprietorship. There is limited capital which could be used for business startup as it is limited scale business. Business could be started with a small amount and earn profit.

·         Saving of taxation of Sole proprietorship vs Corporation

As sole proprietorship is small business ownership which is based on limited profit so there is no proper tax deduction in this business. The whole profit is enjoyed by the owner without paying of tax as its profit is also limited.  

·         Complete ownership

The complete ownership of the business is in the hand of owner so there is no interruption of the others in the matters of the business. The single person is responsible for the whole management by his own will.

·         Easy maintenance

It is easy to maintain the formation of the sole proprietorship as there is no complex policies of which are required to implement in the business. Therefore it is easy to carry this form of business by the single person (Schneeman, 1997).

Disadvantages of the sole proprietorship

There are different drawbacks which are faced by the person who is running sole proprietorship business. The disadvantages are also explained as well:

·         Unlimited liability

The liability of the single person is unlimited in this type of business. If there is any loss in the business, the entire burden is on the one person and his personal property could be sold for the payment of the business debts.

·         Short profit

As the capital of the business is limited the profit generated from the business is short which is not enough to meet the requirements of the business. The business is earning short profit so the business profit is not enough to meet the requirements of the business.

·         Limited resources

With the limited capital and limited resources, it is not possible to explore the different methods which should be adopted by the business owner. So there is less opportunities to expand the business with limited resources.

·         No legal security

As the single trader ship is not required to fulfill the legal requirements of the business which provide no security to the owner which could be used to facilitate the business.

Advantages of corporation

The corporation is based on the term which is most likely business unit which is owned by investors and shareholders. The management of the corporation is based on the board of directors which are responsible to run the whole business. There are some advantages which are discussed below:

·         Large capital of Sole proprietorship vs Corporation

In the business of corporation or company, there is large amount of capital which is invested in the business by different owners. The capital could be generating with the help of the issuing shares and debenture in the market which could be purchased by the different investors exists in the stock market.

·         legal requirements of Sole proprietorship vs Corporation

The legal requirements of the business make the business more secure. Therefore it is considered to implement the legal requirement of the business which could secure the business.

·         Limited liability of Sole proprietorship vs Corporation

All the partners owe limited liability which means that the partners are liable to the portion of the loss which is up to the portion of capital invested in the business.

·         Perpetual life of Sole proprietorship vs Corporation

The business entity is enjoying perpetual life which means that the business age will not end with the death of the partners. It will keep running and partners will change with time to time.

·         Equal distribution of Profit of Sole proprietorship vs Corporation

The burden of the profit is distributed among different partners which is affordable by the partners as it is bear by the partners in small amount which is not considered more difficult to pay (Haynes, Walker, Rowe, & Hong., 1999).

Disadvantages of corporation

There are also some disadvantages which are faced by the owners while building this type of ownership which is explained below:

·         Double taxation of Sole proprietorship vs Corporation

There is proper taxation system in the corporation as company is registration and company is liable to pay the tax to government other than this there must be liability of the tax payment on further profit given to the partners and they have to pay tax on their income individually.

·         Costly formation of Sole proprietorship vs Corporation

The cost of formation of the business is more as compare to other business ownership. There are different expenses which are paid by the owners for the legal documentation.

·         Regulations to follow

Any business corporation which deals in any kind of business, have to follow some instructions which are set by the management of the company for the owners and investors.

·         Lack of secrecy of Sole proprietorship vs Corporation

When there is large number of owners and management is handled by the board of directors, there are fewer chances to keep the secret of the business into limited hands. There are most chances to leak out the information through different employees.

In above we have discussed both the form of business ownership with their advantages and disadvantages in the business situation.  In case of sole proprietorship, there is convenience for the owner to start business as it is easy to form sole proprietorship with no legal requirements but in case of corporation, there must be proper documentation of the business to establish. Beginning another business as a sole ownership is the least demanding business structure toward the start. In any case, as the business develops, shifting over to an organization gives the organization choices to increase capital, describe in new investors, and give individual resource security to the proprietors. Despite the fact that the primary expense to shape an organization is considerable and there is a great deal of administrative work, the corporate structure is helpful to the investors in the long drag. In private owned business has a little meeting of financial specialists who can't offer their offers to the largely population. An open organization has enlisted its offers available to be purchased with the Securities and Exchange Commission (SEC), and may likewise have recorded its offers on a stock trade, where they can be exchanged by the overall population. The necessities of the SEC and the stock trades are thorough, so nearly not many organizations are openly held.

Recommendations of Sole proprietorship vs Corporation

After analyzing both business ownerships it is concluded that both organizations are beneficial for the owners to form according to their capital situation. There are complete guidance for the owners if they have money to invest in the business and they are not interested in taking part in the management of the business then they can invest in the corporation and could get dividend on their share of investments while on other hand if owner want to work in his own business without any interruption of other he could invest his money in sole proprietorship which is also a reliable business form. Corporations are not bad but it is not suitable for every person, these are the best opportunity for the people who have large amount of capital to invest. If one has large amount of capital he should go for corporation business (Corman, Lussier, & Pennel., 1996).

Reference of Sole proprietorship vs Corporation

Allen, W. T. (2017). Our schizophrenic conception of the business corporation. In Corporate Governance (pp. 79-99). Gower. , 79-99.

Corman, J., Lussier, R. N., & Pennel., L. (1996). Small business management. a planning approach (pp. 133-156). Chicago, IL: Irwin. , 133-156.

Crusto, M. F. (2001). Extending the Veil to Solo Entrepreneurs: A Limited Liability Sole Proprietorship Act (LLSP). Colum. Bus. L. Rev. , 381.

Haynes, G. W., Walker, R., Rowe, B. R., & Hong., G.‐S. (1999). The intermingling of business and family finances in family‐owned businesses. Family Business Review , 12 (3), 225-239.

Schneeman, A. (1997). The law of corporations, partnerships, and sole proprietorships. Delmar Publishers.