There are several business models, which differ in legal status, owner’s liability, and taxation. These are sole proprietorship, partnership, and a corporation.
According to Investopedia, the most basic business model is a sole proprietorship. It is ran by a single individual, and it does not have a legal status, unlike corporations. The sole proprietorship cannot exist without its owner, who is fully responsible for business’ debts. Its bank account is a personal account of its owner, and the earned income is seen as individual’s personal income. Therefore, an owner has to pay only a personal income tax.

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A partnership differs from a sole proprietorship by number of owners. Investopedia explains that to start a business partnership, two or more people have to decide to run a business together. There are different types of partnership, regarding liability of its owners. In a general partnership, all owners are fully responsible for debts and losses. According to Masino, in a limited partnership, there can be a fully liable partner, who runs the business; and partners with limited liability, who do not hold personal responsibility. A partnership also is not a legal entity, and its owners pay only personal income taxes.

A corporation is the most complicated model of these three. Investopedia states that unlike a sole proprietorship and a partnership, it is recognized as a legal entity. A corporation and its owners are separate, and its shareholders cannot be sued for its debts. It is ruled by the board of directors, who are responsible for its day-to-day management. Corporations pay taxes on their profits and parts of general profits are sent to shareholders as dividends.

Overall, a sole proprietorship has one owner, whereas a partnership and a corporation have many. Only a corporation is a legal entity, unlike two other models, which results in different taxation. An owner of a sole proprietorship and a general partner of a partnership have full liability, whereas a limited partner and corporation’s shareholders are nor responsible for business’ debts.

  • “Corporation.” Investopedia. 06 Mar. 2015. Web. 11 Apr. 2017.
  • Masino, Dennis. “Differences Between Sole Proprietorship, Partnership, & Corporation.” LegalZoom: Legal Info. 24 Sept. 2012. Web. 11 Apr. 2017.
  • “Partnership.” Investopedia. 15 Jan. 2016. Web. 11 Apr. 2017.
  • “Sole Proprietorship.” Investopedia. 12 June 2015. Web. 11 Apr. 2017.