Key Differences Between Corporation and Sole Proprietorship
What are the key differences between a corporation and a sole proprietorship?
1. Which of the following is a key difference between a corporation and a sole proprietorship?
- Unlike a sole proprietorship, a corporation's owners have limited liability.
- Establishing a corporation is easier compared to establishing a sole proprietorship.
- Unlike a corporation, a sole proprietorship is subject to double taxation.
- A sole proprietorship has complex legal requirements unlike a corporation.
Key Differences Between Corporation and Sole Proprietorship:
The key difference between a corporation and a sole proprietorship lies in the ownership structure and legal responsibilities of the owners.
A corporation is a separate legal entity from its owners, which means the owners have limited liability and are not personally responsible for the company's debts or legal obligations. On the other hand, a sole proprietorship is owned and operated by a single individual, making the owner personally liable for all aspects of the business.
In terms of ownership, a corporation is managed by a board of directors who make major decisions on behalf of the company. In contrast, a sole proprietorship owner is responsible for all decisions related to the business, including day-to-day operations and financial matters.
The purpose of establishing a corporation is to provide owners with legal protection and to separate personal assets from business liabilities. While setting up a corporation is generally more complex and involves more stringent legal requirements, a sole proprietorship is easier to establish with fewer formalities.
In conclusion, the key differences between a corporation and a sole proprietorship are the limited liability of owners in a corporation, the management structure, and the complexity of establishing each business entity.