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Understanding the different types of Business Entities

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Understanding the different types of Business Entities

Sole proprietorship

            Also known by the name Proprietorship or sole trader, it refers to the simplest form of business structure that is owned by natural persons and in which there are no legal distinctions that exists between the owner and the business. This means the owner bears all the accountability on loan, losses, and debts. IRS provides a chart to assist one identify all features that need to be accommodated by Sole Proprietorships (IRS Para 3).


            A partnership refers to a type of relationship that may exist when two or more parties join with the same intention of carrying out trade or opening a business. Each of the parties may contribute property, money, labor, or skills allowing them to participate in sharing of either profits or losses. By law, partnerships are re expected to make annual returns regarding all their operations through income, profits, losses or any deductions made but they are not expected to make income returns since any losses accrues to the partners—.( IRS Para 2).

Limited Liability Co.

Hybrid is a form of a private company that allows members to avoid that taxation framework of sole traders and partnership. The statute in various legal states in the US determines the structure of such legal frameworks as some statutes refer to some type of business as professional Limited Liabilities companies. For classification, IRS treats LLC in the form of a corporation, a disregard entity or a partnership (Dunn 352).

Comparison and Contrast of these forms of Structures

            In comparing three forms of business there are various legal provisions that guide how each form should act and should guide the operations they do. Each always has the right to obtain capital from similar avenues so long as they are within the legal limits and each is required to report its operations through returns, deduction, profits or losses (Murphy 571).

In contrast, the taxation method adopted by each is usually different to the other. Transfer of ownership may be possible under LLC without disrupting business however; under partnership and proprietorships, this may disrupt business. Partnership and proprietorships do not involve a lot of paper work when resolving issues compared to LLC (Dunn 352). The same reflects in debt liability where partners and proprietors are liable to pay creditors with their individual funds but not under LLC.

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  • Title: Understanding the different types of Business Entities
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