Accounting: Business Structures



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There are four main types of business organization: sole proprietorships, partnerships, corporations, and limited-liability companies.



Sole proprietorship

  • A sole proprietorship has a single owner, known as the proprietor. This is a common structure for small businesses.

  • The owner of a sole proprietorship is personally liable for the debts of the business.

  • A sole proprietorship ends with any change in ownership, or with the death of the proprietor.



Partnership

  • A partnership has multiple owners, known as partners. The partnership is a common business structure for professionals (e.g. accountants, doctors, lawyers).

  • The partners in a partnership are personally liable for the debts of the business.

  • The partnership itself is not taxed, but each partner will be taxed on his or her share of earnings.

  • A partnership is terminated when one of the partners either dies or decides to end the partnership.



Corporation

  • A corporation is considered to be a separate legal entity, legally distinct from its owners.

  • The owners of a corporation are called stockholders or shareholders.

  • The stockholders of a corporation are not personally liable for the debts of the business.

  • Corporations are authorized by state governments, and the laws governing their operation vary from state to state.

  • The state of jurisdiction issues newly-formed corporations a charter, also known as articles of incorporation.

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