Business Law: Types of Business Formation

If you are new to the world of business law, you may find that you are confused when it comes to the differences between the corporation and sole proprietorship. The difference between a corporation and sole proprietorship is usually as simple as understanding the basic concepts involved in these two entities.

A corporation is an unincorporated entity that can have its status changed by incorporation. These businesses must be registered as a corporation with the appropriate government agency or authority. When it is first created, a corporation is a separate legal entity from the owner and the property and assets that are owned by the owner. It is operated as a separate legal entity separate from the owner and under the control of the government.

Because a corporation is considered a separate legal entity, the corporation cannot acquire or hold personal property or assets that are held by the owner or the owners. For example, if the owner of a business were to sell the business to a private party, then the purchaser would be able to include the property in the transaction, but he or she would not own it. A sole proprietorship can acquire personal property such as real estate or other personal assets, as long as the owner is not willing to include the property in the transaction. A sole proprietorship can also have its assets included in the business transaction if the owner is willing to sell the business.

Under a partnership, a sole proprietorship, and an S-Corporation, all of the owner’s rights and interests in the business are owned and controlled by the business itself. In this case, the sole proprietorship owner does not receive any property or assets. Each of the owners of a sole proprietorship has an equal share of the business, but the owners can hold a vote if there is a general meeting. If a sole proprietorship or S-Corporation has more than one owner, the common ownership is referred to as a “sui generis” share, which is not a share that can be acquired by anyone other than the owner or the owners.

A corporation is not regulated by the Internal Revenue Service (IRS), and only a limited number of states require a business to register as a corporation in order to operate. There are no federal laws governing the operations of a corporation. Also, a corporation is not allowed to obtain or hold personal property. A sole proprietorship, however, can acquire personal property, including real estate, depending on the law of the state where the property is located.

With the above information, you should be able to understand the differences between the corporate and the sole proprietorship, and how they differ in business law. to understand the differences between business entities you may want to ask a  business lawyer, to better understand the differences between business and personal law.