How To Choose The Right Type Of Organization For Your New Business

By Business Editor

In this article, we examine the three types of organization available to the new business owner ...

There are many things to consider before venturing out and starting a new business. One of the most important aspects is: who will be involved in the business and to what capacity? There are three types of organization available to the new business and those are: sole proprietorship, partnership and corporations. There are advantages and disadvantages to each situation.

Sole proprietorship is the most prevalent of all business organizations but has the smallest percentage of sales. There are several advantages of sole proprietorship and most are quite obvious. As the sole owner, you will have complete control over the business and also reap all of the monetary gain of the business. The sole proprietorship is also the easiest business to start and the easiest business to close. Conversely, you are incurring you have a limited source of funds and unlimited liability. Regardless, the sole proprietorship works well for most people who are starting up a new business.

Partnership is the second type of business organization consisting of two or more people who all own a business together. There are three types of partnerships to consider. The first is the general partnership, which means that all partners are equal. The next is limited partnership, which gives one general partner unlimited, while the other has limited liability. The third is the joint venture, which is a partnership in a specific venture for a certain period of time or a single project. Partnerships have their advantages because there is always someone to share the workload and potential problems. Partnerships are also easier to establish. Downfalls of a partnership include sharing profits and the possible dissolution of the business due to conflict. Partnership, like sole proprietorship, also has unlimited liability.

The corporation is a business organization that is generally a company that is larger. A corporation must be deemed by the state and the liabilities and assets are separate from the owners. The first type of corporation to consider is the private corporation, which is owned by one person or possibly a few people who all have equal say in the management of the business. The public corporation is a business that has stock for outsiders to buy, sell, or trade. The advantages to a corporation include limited liability, expansion potential, and access to external funds. The downside is the release of power to other people, sharing the profits, and the sheer difficulty of forming a corporation.

When starting a business, most people will lean towards the sole proprietorship or partnership. Corporations make up the fewest number of businesses and for a good reason. Most businesses are smaller and need tight management. Look into all options of business organization to find what works best for you prior to starting your own business.

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