There are a number of different types of business organizations an individual or a group can form. However, three of the most common types of business organizations are sole proprietorships, partnerships and corporations. These three types of businesses are similar in some ways, but a number of differences are important to note.
A sole proprietorship or a partnership may be formed without filing any formal paperwork. The creators of a corporation, however, must file a document known as the articles of incorporation.
The owner(s) of a sole proprietorship or a partnership may be held liable for any business activity and/or obligation. Corporate shareholders, however, usually are liable only for the amount they invested.
Corporations are required to keep strict records of meetings and other similar administrative activities, while a sole proprietorship or a partnership typically is not required to do so.
A sole proprietorship can have only a single owner, but a partnership or a corporation may have any number of owners.
The owner of a sole proprietorship is required only to report the business’ earnings on her tax return, while a corporation or a partnership must file a separate return for the business.