Types of Business Organizations

Generally, businesses are legally organized in one of three forms:

Sole Proprietorship

This is a business owned and operated by a single individual.

  • The law makes no distinction between the individual and the business, so the individual assumes unlimited liability.
  • The individual owner may face challenges in raising capital.
  • Ownership of the sole proprietorship is transferred only by the full sale of the business.


This is a business owned by multiple individuals.

  • The owners of a partnership share in the unlimited legal liability risk.
  • The ownership of a partnership cannot be transferred.
  • Typically, the partners will use mutually agreed legal contracts to manage conflicts of interest among themselves.
  • A partnership may be able to more easily raise capital than a sole proprietorship, but not as easily as a corporation.


This business is chartered by the laws of a government body.  The corporation, unlike the sole proprietorship or partnership, is a legally distinct entity from its owners.

  • The corporation can quickly raise debt or equity capital.
  • The corporation’s owners do not need any specific expertise to participate in the corporation.
  • Ownership in a corporation can easily be transferred.
  • Stock owners have only a limited legal liability (i.e., the worst case scenario is that the value of their shares drop to $0).
  • Corporations are more heavily regulated than sole proprietorships or partnerships.
  • Equity owners also face greater difficulty in overseeing the business operations of a corporation.
  • Corporations also face more conflicts of interest than the other business organization structures.