Business Structures & Entrepreneurship

Business Ownership Structures

Sole Proprietorship

This is the simplest business form, owned and run by one individual with no legal distinction between the owner and the business. Advantages: Easy and inexpensive to form, complete control for the owner, and all profits go to the owner. Disadvantages: The owner has unlimited liability, meaning they are personally responsible for all business debts. This is a significant risk. It can also be difficult to raise capital, and the business’s lifespan is tied to the owner.

Partnerships

A partnership is a business owned by two or more people. The three key elements of a general partnership are a common interest in the business, a sharing of profits and losses, and a mutual right to manage the business. General vs. Limited Partners: A general partner is involved in the day-to-day management and has unlimited liability. A limited partner is an investor whose liability is limited to the amount of their investment and who is not involved in daily operations. Advantages: More financial resources, shared management, and longer survival. Disadvantages: General partners have unlimited liability, profits are shared, and disagreements between partners can be disruptive. A 2025 study on partnership dynamics shows that clear partnership agreements are crucial for mitigating potential conflicts. A Master Limited Partnership (MLP) is a type of limited partnership that is publicly traded.

Corporations

A corporation is a legal entity with authority to act and have liability separate from its owners (shareholders). People incorporate primarily to gain limited liability, which means owners are only liable for their investment and personal assets are protected. Advantages: Limited liability, ability to raise more money through the sale of stock, and perpetual life. Disadvantages: Complex to set up, double taxation (profits are taxed at the corporate level and again as dividends to shareholders), and extensive paperwork. S Corporations: A special type of corporation that avoids double taxation by allowing profits and losses to be passed directly to the owners’ personal income. They still provide limited liability.

Limited Liability Companies (LLCs)

LLCs are a popular hybrid structure. Advantages: They provide the limited liability of a corporation but have the flexibility and tax advantages of a partnership, avoiding double taxation. They are also less complex to operate than a corporation.

Mergers, LBOs, and Franchises

A merger is the result of two firms joining to form one company. A Leveraged Buyout (LBO) is an acquisition of another company using a significant amount of borrowed money. Taking a company “private” means its shares are no longer traded on a public stock exchange. A franchise is an arrangement where a franchisor sells the rights to use its business name and system to a franchisee. The main benefit for a franchisee is joining a proven brand with established support, but the drawback is less control and the need to pay ongoing fees and royalties. Finally, a cooperative is an organization owned and controlled by its members, who share in the profits or benefits.

Understanding Small Business

Small businesses are vital to the U.S. economy, responsible for creating the majority of new jobs. The Small Business Administration (SBA) defines a “small business” based on industry-specific size standards (either number of employees or average annual receipts).

Why Small Businesses Fail

Many small businesses fail due to factors like poor management, insufficient capital, and a lack of planning. For example, a local restaurant might fail because the owner is a great chef but has no experience with accounting, marketing, or employee management. A detailed custom business plan can help mitigate these risks.

Planning for Success

A solid business plan is essential. It includes an executive summary, company description, market analysis, organization and management structure, product/service line, marketing and sales strategy, and financial projections. To fund a new business, entrepreneurs should consider personal savings, loans from family and friends, bank loans, and venture capital. Small-business owners often face challenges with employees, such as finding and retaining good talent and managing payroll and benefits.

Finding Help

Budding entrepreneurs can find help from many sources. The U.S. Small Business Administration (SBA) is a key resource. Their website shows they offer services like access to capital (through loan guarantees), entrepreneurial development (counseling and training), and government contracting assistance.