Choosing Business Ownership (continues...)

Risk.

If the business involves a great deal of risk a sole proprietorship or general partnership may be a bad idea because the owner and general partners are personally liable for the business debts and obligations.

Operation.

The form of the business entity may dictate how it is operated. If you want total control, a sole proprietorship provides the businessperson the greatest degree of control (and the greatest degree of potential risk).

Capitalization.

An undercapitalized business may result in a loss of protection provided by the business entity. In addition, some business forms make it easier to raise capital when it is needed.

Selling.

A sole proprietorship is easy to sell; usually you sell the assets of the business, and your business ceases to exist. Selling a partnership interest or a member's interest in a limited liability company can be tricky because it requires approval of the other partners or members.

State Taxes.

Some states have begun to levy taxes on the business entity itself. This is becoming a big issue with limited liability companies. You should know whether your state will tax your business entity before setting it up.

Expansion.

Every entrepreneur wants to be as successful as possible. Some business entities are limited to the number of shareholders they may have. A sole proprietorship ceases to exist the moment the sole proprietor takes on a partner. It is important to choose a business form that allows you the greatest room to grow if that is what you envision. Although the business form may be changed, this involves additional expense and energy.