A Business Entity – Sole Proprietorship vs Corporation

By Tracy Thomas
Rev Marketing 2 U, Inc.

By law, any business that makes a profit must register that business as one of many designations. Two of the most common types of businesses entities are sole proprietorship and corporations. For anyone interested in conducting business and making revenue, they must know the distinctions between these two types of entities. There are advantages and disadvantages to both.

A sole proprietorship is sometimes known as a proprietorship or sole trader, and works the way it sounds. There is no distinction between the business and the owner in this type of business entity. One person alone owns and operates the business without a partner. That one person carries unlimited responsibility for all debts and losses incurred by the company. Furthermore, that owner also receives all profits made by the company (subject to taxation). All debts of the proprietorship and every asset of it are the proprietaries, though they may have people working for them. In some cases, the individual that owns the business will use a name other than their own and must file for tax purposes.

A corporation is much different than a sole proprietorship and much more complex. With liabilities and privileges that are dissimilar from those of its members, a corporation is a separate legal entity. Clubs, charities, and public bodies can be corporations and they can take on many forms including cooperatives, joint-stock companies, corporations sole, and statutory corporations. Limited liability ñ if a corporation fails, neither employees nor shareholders are liable for debts to the creditors of that corporation ñ is one of the most contemporary features of a corporation. Corporations can be dissolved and can be liquidated by creditors.

The main difference between these two: Corporations tend to have a board of directors, shareholders, and limited liability; sole proprietorships do not.

Speak to your CPA to get assistance and protect yourself before something arises.

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