Business Ownership Options: The Big Four
Choosing a form of business is a crucial decision that entrepreneurs make when starting a new business. The form of business an entrepreneur chooses impacts many aspects of the new company including the ease of formation and startup costs, the retention of profits, tax implications, and liability for debts—just to name a few. Some decisions might be easy to make. For example, if an entrepreneur is going into business with a friend or family member, then the option to form a sole proprietorship is off the table. Additionally, if they want an easy transfer of ownership after they retire or pass away, then a corporation may be the best option.

There are four main types of business ownership options as follows:

Sole proprietorship

Partnership

Corporation

Limited liability company (LLC)

Sole proprietorships are a form of business ownership with a single owner who usually actively manages the company. Profits from the company are treated as the owner’s income. Additionally, the owner is personally responsible for any debt the company incurs. This is known as unlimited liability.

A partnership is a voluntary agreement under which two or more people act as co-owners of a business for profit. The most basic form is a general partnership, in which all partners can take an active role in managing the business and each is subject to unlimited liability for any claims against the firm. There are several types of partnerships, which will be explored in a later lesson.

Corporations are a form of business in which the business is considered a legal entity that is separate and distinct from its owners. Forming a corporation is done through articles of incorporation. As a separate legal entity, corporation owners have limited liability—meaning they are not personally responsible for debts incurred by the company.

A limited liability company (LLC) is a form of business that offers both limited liability to its owners and flexible tax treatment. Owners of an LLC can choose to have the business taxed as a partnership or a corporation.

The most common form of business in the United States is the sole proprietorship. More than 70% of all businesses are sole proprietorships, but corporations collectively have a higher total revenue and net income than sole proprietorships and partnerships.

Needs for a business may change over time, and luckily the form of business ownership can change as a company grows and transforms. Both Walmart and eBay began as sole proprietorships, but over time they grew and switched to being corporations.

_______ are a form of business that offers both limited liability to its owners and flexible tax treatment.


Partnerships


Corporations


Limited liability companies (LLCs)


Sole proprietorships
Assessment question

_______ are a form of business in which the business is considered a legal entity that is separate and distinct from its owners.


Sole proprietorships


Limited liability companies (LLCs)


Corporations


Partnerships
Assessment question
The most common form of business in the United States is a 


select answer
 .
Assessment question

________ offer limited liability to owners.


Partnerships and sole proprietorships


Limited liability companies (LLCs) and partnerships


Corporations and limited liability companies (LLCs)


Sole proprietorships and corporations