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Part 2: Advantages, Disadvantages of Different Business Structures

| Nov 15, 2020 | Business formation |

Regular readers of our Utah Business Law Blog might recall that we recently published a post that described the main advantages and disadvantages of a couple of business legal structures: sole proprietorship and general partnership.

We’re going to delve into more pros and cons of different structures in this post, hoping to give prospective St. George entrepreneurs food for thought as they go through the process on deciding on which business entity will best suit their purpose and circumstances.

Limited Partnership

Advantages

  • Investors are only liable for the amount of their investment
  • Limited partners have limited liability for debts and other business liabilities
  • General partners can raise funds without reducing their business control
  • Limited partnership needn’t be dissolved when limited partners exit

Disadvantages

  • General partners are jointly, personally liable for business debts and other liabilities
  • Creation of limited partnership can be more expensive than the creation of a general partnership
  • Mainly for investment groups in real estate or the film industry

Regular corporation

Advantages

  • Owners have limited liability for business debts and other liabilities
  • Some benefits deductible as business expenses
  • Owners and business can pay less in taxes by splitting profits among owners

Disadvantages

  • Costs more to create than sole proprietorship or partnership
  • Paperwork can be complicated
  • Corporation is a separate tax entity required to pay taxes

S Corporation

Advantages

  • Owners have limited liability for business debts and other liabilities
  • Owners share net profits and report their shares on personal income taxes
  • Owners share net losses and can use the losses to offset other income on personal income taxes

Disadvantages

  • Costs more to create than sole proprietorship or partnership
  • Paperwork is more complicated than for a limited liability corporation (LLC)
  • Some benefits are reserved for owners with more than 2 percent of business shares
  • Shares of business profits are determined by size of each ownership interest

Note: the list here contains only the main advantages and disadvantages of each business entity. There are many more details to understand before choosing a legal structure. Also, we will finish our series in a future blog post. Please check back.