If you were going to start a company, which form of ownership would be most appropriate if you have few financial resources.

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larrygates's profile pic

larrygates | College Teacher | (Level 1) Educator Emeritus

Posted on

The more appropriate choice would be to form a corporation for the purpose of operating your business. Corporations have a number of advantages which partnerships and sole proprietorships do not offer:

  • Liability is always an issue when doing business. If one is a sole proprietor, any liability will fall directly on ones assets, including his home, properties, etc. One could end up practically destitute, or at least bankrupt. Partnerships are actually worse for liability purposes, as one may be liable for the negligence or intentional torts of ones partner.
  • Potential conflict between partners is always a concern. Partnerships are like marriages, with all the potential for conflict and turmoil. Financial matters are almost always the major point of disagreement. Although a sole proprietorship avoids conflict issues, one almost never has vacations, etc. as the business will never run efficiently if one is not in constant control.

When one forms a corporation, he literally creates a third person who can do anything that one can do that does not require a physical act. It can own property, run a business, make money, hire/fire employees, etc. Ones personal assets are protected from liability, and with appropriate tax planning, corporate taxes can be avoided. Most importantly, since the corporation is a third person, it will survive the death, illness or disability of any of its principles. There is some initial startup costs, but the advantages far outweigh the disadvantages. In the instance of a partnership of sole proprietorship, the opposite is true.

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

If you had very little in the way of financial resources, your best hope might be to form a partnership.  The object of this would be for you to find a partner who would provide funding while you provided the expertise.

If you don't have much money, a sole proprietorship could work.  One of its main down sides is the risk of losing all your money.  But if you don't have money to begin with, that's not much of a risk.

But a partnership would be better.  This is because you are likely to have a hard time attracting funding to a sole proprietorship.  Banks are likely to be a bit leery of loaning to you.  If you are going to need money, finding a partner might be your best hope.

You should choose based on your financial needs.  If you need a lot of money for your company, try to form a partnership.  If you don't, then just form a sole proprietorship.

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