Sole-proprietorship vs corporation Flashcards
S-P definition
A business owned by one person and operating for their benefit.
Corp. definition
A legal entity that is separate an distinct from it its owners, designed to conduct business
S-P ownership
Owned by one person
Corp. ownership
Owned by shareholders
S-P legal structure
Business and owner are the same (No separate entity)
Corp. ownership
Corporation and owners are distinct (Separate entities)
S-P liability
Unlimited liability
Corp. liability
Limited liability
S-P taxation
Business profits are taxed as personal income
Corp taxation
Corporation pays taxes and shareholders pay taxes on dividends
S-P management
Managed by the owner
Crop management
Managed by board of directors and executives
Corp. lifespan
Perpetual existence (Continues even if the owner changes)
S-P raising capital
Limited to personal funds and loans
S-P lifespan
Business ends when the owner dies or quits
Corp. raising capital
Easier to raise capital through stock issuance
S-P regulations
Few regulations, simple to set up
Corp. regulations
More regulations, formalities and paperwork
S-P decision-making
Sole decision-maker
Corp. decision-making
Decisions made by board of directors and voting of shareholders
S-P benefits
- No sharing of profits
- Easier decision-making, no conflict of interest
- Lower start-up and maintenance cost
- Single taxation (15%)
S-P drawbacks
- Unlimited liability
- Hard to raise capital
- Hard to attract talent
- Hard to transfer ownership
Corp. benefits
- Easier to raise capital and grow
- Limited liability
- Easy to attract talent
- Easy to transfer ownership
Corp. drawbacks
- More transparent
- Hard decision-making, conflict of interest
- Double taxation
- More difficult to form and maintain