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Legal Issues
One of the first decisions to make when starting a business is the type of structure to use. The four main types are sole proprietorship, partnership, corporation and limited liability corporation. Each has advantages and disadvantages. Sole Proprietorships. A sole proprietorship is the simplest structure because the owner and business are the same. It is easy to form (typically requiring only a certificate of doing business and/or business license), and is not subject to many regulatory and/or reporting requirements. In a sole proprietorship the owner has total management control. Also, the business is not a separate entity, so it does not pay taxes. Income and losses from the business flow directly through to the owner and are reported on the individual's tax return. In the early years of a business, when losses are common, this can afford a significant tax benefit to an owner who has substantial income from outside the business.
The downside is that the owner is personally liable for the debts of the business. Another problem is that capital for the business is limited to the owner's business and personal resources. Further, since only the owner can act on the business's behalf, the business terminates upon death. And finally, although sole proprietorships...