Final answer:
Sole proprietorships offer simplicity and full control but carry the risk of unlimited liability and difficulty in raising capital. Partnerships allow for shared decision-making and skills, but partners share mutual liability. Both business forms benefit from simple tax structures but have challenges with liability and financing.
Step-by-step explanation:
When it comes to the structure of a sole proprietorship, it involves a business owned and managed by one individual. The advantage is the simplicity in its creation and management, with the owner having control over all decisions and the benefit of receiving all profits. However, a notable disadvantage is the unlimited liability the owner bears, meaning the owner's personal assets are at risk in the event of business failure. Sole proprietorships may find it challenging to raise capital since the business is not a separate legal entity from the owner.
In a partnership, two or more people share ownership and management responsibilities. Partnerships benefit from combined skills and shared decision-making, ease of formation, and potential to attract investors. The downside, however, is mutual liability, where each partner is responsible for the actions and debts of the others. In addition, partnerships have a limited life span; they typically cease to exist if a partner withdraws or dies, unless there are provisions for continuance.
Both sole proprietorships and partnerships do not require special taxes beyond personal income tax on earnings. The main challenge for these business structures relates to liability and raising capital. Comparatively, corporations offer the benefit of limited liability and easier access to capital but with more complex legal requirements and tax structures.