Final answer:
Sole proprietorships are owned and operated by one individual with unlimited liability, partnerships involve shared ownership and liability, while corporations are independent legal entities with limited liability for shareholders. Each has distinct advantages and disadvantages in terms of control, liability, taxation, and ability to raise funds.
Step-by-step explanation:
Comparison of Sole Proprietorships, Partnerships, and Corporations
Sole proprietorships are businesses owned and operated by one individual who is solely responsible for all the business's debts, liabilities, and operations. A partnership is similar but involves two or more individuals who share responsibility and profits, based on an agreement between the partners. Corporations are more complex structures that exist as independent legal entities, separate from their owners, and are capable of owning property, entering into contracts, and being sued.
Advantages and disadvantages differ among these entities. Sole proprietorships offer simplicity and complete control to the owner, yet offer no liability protection for personal assets. Partnerships provide a shared workload and potential for more resources but come with joint liability for debts. Corporations provide limited liability, protecting personal assets from business debts, but are more complicated and expensive to establish and maintain. Additionally, they are subject to double taxation: the corporation itself is taxed, and shareholders are taxed on dividends.
In terms of size and profits, sole proprietorships are the most numerous but often the least profitable due to their limited resources. Corporations, although fewer in number, tend to be larger and more profitable. Furthermore, corporations can raise capital by selling shares, which sole proprietorships and partnerships cannot do as easily.
The level of personal liability varies, with sole proprietors and partners having the most at stake personally, while shareholders of a corporation enjoy limited liability. This protection makes corporate structures appealing to many business owners despite the increased regulatory and tax burdens.