Types of Business Organizations

Sole proprietorship is the simplest form of business organisation. It is owned by one person, but it need not be operated by that person alone. A sole proprietorship can even have large numbers of employees.
There are advantages and limitations of running a Sole Proprietorship type of business. Do carefully study the legal implications of the pros and cons before deciding the best option.

Advantages of Sole Proprietorship
- As a sole proprietor, you have absolute freedom in decision making.
- All profits will be your personal property.
- No reports of accounts are required.
- You only need to pay personal income tax and not business tax.

Limitations of sole proprietorship
- You are responsible for the debts and risks of the business.
- Legally, there is no difference between your personal and your business property. - Your liabilities are unlimited, whicn means risks and failures in the business will involve your personal property.

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

A partnership is also a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

Corporation is the most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, call incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability). Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships.