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Part 1: Advantages, Disadvantages of Different Business Structures

| Nov 8, 2020 | Business formation |

Let’s imagine for a moment that you and four of your friends are pooling your resources and opening a new St. George pizza place. Would the group be better off with a general partnership or limited partnership or with a different type of business structure?

If you decide to start a venture all by yourself, should you go with a sole proprietorship or would a different business entity offer legal protections that are important to you?

Finding the right fit

One of the most important decisions an entrepreneur makes about their commercial venture is deciding which legal structure is the proper fit for their set of circumstances. It can be a difficult decision because each type of business structure has advantages and disadvantages.

Let’s take a look at some of the main advantages and main disadvantages of the various business entities.

Sole proprietorship

Advantages

  • Easy to create
  • Owner and business are the same legal entity
  • No fee for creation
  • Net business losses are deductible from the owner’s personal income taxes

Disadvantages

  • Owner’s personally liable for business debts and other business liabilities
  • Owner has to pay personal income taxes on all business net profits

General partnership

Advantages

  • Easy to create
  • No fee for creation
  • Owners can report their share of business net losses on their personal income taxes

Disadvantages

  • All owners are jointly and personally liable for business debts and other business liabilities
  • Owners have to pay personal income taxes on all business net profits

There’s more to consider

Please remember that these are simply the main advantages and disadvantages. There are more nuanced pros and cons to consider for each business entity.

We will have more on the different types of business legal structures in upcoming posts published on our Utah Business Law Blog. Please check back soon.