ifficult to raise capital as a sole proprietorship since there are limited assets and limited access to capital.
The partnership is a common form of organization that gives the entrepreneur greater access to capital. In a general partnership, each partner shares in the liability of the organization, but each partner also shares in the profits and has a say in how the organization is run. Companies that are formed by several individuals, each contributing in a different area of expertise, often choose the general partnership form of organization since it offers each ample reward for their contributions. As with a sole proprietorship, liability is shared among all partners. This can be eliminated through the use of a limited partnership, in which individuals are liable only to the level of capital investment that they have made; limited partners do not have a say in how the organization is run. Limited partnerships offer a way to raise capital without taking on additional influences in the organization (Siropolis, 1994).
The corporation is another legal form of organization that eliminates the liability issue for owners. When an organization incorporates, it becomes a separate legal entity in and of itself, with the assets of the owners no longer tied to the fortunes of the venture. Corporations can raise capital by selling shares in the organization, which gives ownership rights and privileges to the shareholders. Corporations can have extensive start-up costs associated with them, and must meet federal requirements for income taxes and financial reporting. Incorporating can also dilute ownership. One of the greatest drawbacks to incorporating is double taxation: the corporation pays income tax on its revenues and the shareholders pay taxes on dividends received or capital gains netted when stock is sold. Nonetheless, because the corporation form of business offers strong liability protection, it is a popular form of bu...