Reference no: EM133195647 , Length: word count:250

Question: If you have ever thought of starting your own business, you know how important it is to select the most appropriate business type to meet your needs. The sole proprietorship is by far the most popular type of business organization, because it is inexpensive, easy to form, and does not require formal incorporation. A sole proprietorship is still subject to various types of regulations, however. For example, you may have to register your trade name with the state, secure local business licenses, and collect both local and state sales taxes.

The idea of being one's own boss is what makes the sole proprietorship so appealing to entrepreneurs. The major downside to owning a sole proprietorship is that you are personally exposed to unlimited personal liability. The sole proprietorship is not a legal entity, so it cannot be sued. So you could lose not only your business, but all of your personal assets, too, to satisfy a court judgment against your business.

One viable way to protect your personal assets is to purchase comprehensive business liability insurance. Insurance plans can be customized to fit your business needs. Insurance companies offer all kinds of sole proprietorship insurance policies. General liability policies cover everything from personal injury and property damage, to worker compensation, and cyber breach insurance.

Upon successful completion of the course material, you will be able to:

Compare the advantages and disadvantages of operating a business as a sole proprietorship.

Explain the advantages and disadvantages of operating a business as a limited liability company.

The many different forms of business organizations are a reflection of the United States' expansive business environment. Some businesses operate as sole proprietorships, while others incorporate. The decision to choose one business entity over another often is tied to business risks and financing concerns. Because of the risks associated with unlimited liability, sole proprietorships are notoriously hard to fund. Sole proprietors have a very hard time securing capital from investors or loans from banks. Therefore, entrepreneurs often seek alternatives, such as a member-managed limited liability company.

The limited liability company is a separate business entity. Therefore, liability is limited to the amount an entrepreneur has contributed to the business. With a limited liability company, an entrepreneur can retain control over the day-to-day operations by designating himself or herself as the acting manager. The entrepreneur also can include a provision in the operating agreement that prevents fellow members from removing him/her from the LLC without consent. Its limited liability status means that it is easier to attract investors.

View the videos available on the U.S. Small Business Administration website to learn more about the process of outlining and developing a business plan. Developing a business plan can actually help an entrepreneur better decide what type of business structure best fits his/her needs.