Paper Summary:

This paper explains that Marcus, who is a single individual starting a graphic design business, must decide if he is to begin his enterprise as a sole proprietorship or as a limited liability company (LLC). Next, the author explains that a sole proprietorship is the easiest and least expensive form of business organization to create; however, Marcus would be financially liable for all of the potential losses of his company. The paper concludes that a LLC, a hybrid business structure that provides the limited liability features of a corporation but the tax status and flexibility of a proprietorship, would be the better alternative.

From the Paper:

"Additionally, as opposed to corporations, sole proprietors are in complete control of the operations of their company. A creative person like Marcus will value the ability to make all of the decisions about his business, especially as he is only just beginning to define its character. Finally, "sole proprietors receive all income generated by the business to keep or reinvest" and the profits are not dispersed to shareholders. If Marcus tires of working alone and wishes to seek employment with a larger organization, a sole proprietorship is easy to dissolve. Dissolving corporations require complicated legal procedures to ensure shareholders, bondholders, employees, and owners all receive appropriate compensation.
"The problem with a sole proprietorship is that as a sole proprietor, Marcus will be financially liable for all of the losses and potential failure of his company, a very real possibility given the high failure rate for most new businesses, regardless of the economy. His personal as well as his professional assets are at risk if he falls into debt because of his business' failure to thrive. And in these credit-strapped times, he "may be at a disadvantage in raising funds" as sole proprietors cannot issue bonds or sell shares of stock--they are "often limited to using funds from personal savings or consumer loans." "

Sample of Sources Used:

• Sole proprietorship vs. partnership vs. limited liability company (LLC) vs. corporation vs. S-Corporation. Residual Rewards. Retrieved July 15, 2009 at http://www.residual-rewards.com/business-types.html

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