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Selecting the appropriate business structure for a new company can present challenges to an entrepreneur. Considerations must be made to determine the level of liability risk owners are able and willing to carry. Some business structures such as a corporation or limited liability company (LLC) provide protection against the risk of loss due to liability. Both a sole proprietorship and a general partnership structure would leave the owners exposed to unlimited liability.

Sole Proprietorship

Under a sole proprietorship business structure, a company is established and owned by a single individual. Legally, a sole proprietorship is not distinguishable from its owner and operates under the name of the owner alone. Advantages to establishing and operating a sole proprietorship include the ease of creation and the relatively low expenses to establish and maintain the business. Owners also do not face restrictions in terms of hiring employees or mixing business assets with personal accounts.

The greatest disadvantage to a sole proprietorship is the unlimited liability to which the owner is exposed. If a customer or client sues the business or if the business is no longer able to pay its debts, no protection is in place to safeguard the owner's personal assets should the assets of the business not cover damages or default.

Partnership

Under a general partnership, two or more individuals come together to establish a business as co-owners. Similar to a sole proprietorship, the creation of a partnership is not plagued with formalities or excessive fees. However, partners may opt to enter into a formal partnership agreement that lays out guidelines for the distribution of resources, responsibilities, profits and losses.

A business structured as a partnership exposes each partner to unlimited liability for debts, losses and other liabilities while the business is in operation. A general partnership also presents a greater threat to personal assets than a sole proprietorship. All partners can be held liable for the actions of a single business partner even if there was no direct involvement in activities that led to damages or default.

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    The sole proprietor is an unincorporated business with one owner ...
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    An entity formed to engage in a business. A company may be organized ...
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    A type of business where owners share joint and several responsibility ...
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  5. Partnership

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  6. General Partner

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