Sole proprietorships
The sole proprietorship is a business owned exclusively by an individual.  No legal distinction can be made between the owner of the business and the business itself, for they are both one.  There is no formality involved in filing or registering such a business, but if you want to use a name other than your own, you must first file a application for a fictitious name, or a DBA ("Doing Business As") with the Secretary of State's office.

The sole proprietorship provides you with great flexibility in operations and management.  As well, the revenues of the company are considered personal income for tax purposes, and no separate tax return need be filed.  The assets of the company belong exclusively to the individual owner and hence the owner is personally liable for all debts and liabilities incurred by the business.  There is no limited liability protection as there is for a corporation and hence the owner's personal assets are also at risk, which may be a serious problem.  As well, if an employee is hurt on the job, the owner is liable under the doctrine of vicarious liability.

Partnerships
Although the filing procedure for a partnership is similar than that for a sole proprietorship, partnerships are associations of one or more persons doing business as one.  Individual partners can bring in a corporation as a partner, or any business entity which becomes a "person" under this form of organization.  For the purposes of taxation, the income of the partnership is treated as personal income for each individual partner, and neither the creation nor the dissolution of a partnership is a federally taxable event.

Partners can limit their liability if they are integrated in the partnership as limited partners.  This is a significant difference from the status of the owner in a sole proprietorship, although one of the partners must be a 'general partner,' who is personally liable for the actions of the entire partnership.  The limited partner is only liable for the amount of his or her investment in the partnership.
As well as limiting liability to individual partners, the partnership form of business organization will also allocate gains and losses in any manner the partners may decide, thus increasing the tax benefit to particular partners.  This freedom of organization also increases the flexibility of management, although most partnerships are governed by majority vote.  The general partner will, naturally, have more power and responsibility than the limited partners. 

Corporations
Corporations are creatures of the state, and no corporation can be created without the state's authority.  The corporation is controlled by the law of the state in which it is incorporated in case of any conflict of laws.  The articles of incorporation must be submitted to the secretary of state by the person who prepares the filing.  These articles include the name and address of the corporate agent and of the incorporator, the stock structure, the identity of the directors that initiate the company, and the purpose and estimated duration of the corporation.  Once all statutory requirements are met, the state issues a certificate of incorporation.
As opposed to partnerships and sole proprietorships, the shareholders, or corporate owners, are shielded from personal liability and have no obligations to the corporation beyond paying full consideration for their shares.

The corporation is considered by law a 'legal person,' and has therefore the right to enter into any contract and assume any obligation, sue in court and defend from lawsuits.  However these advantages are outweighed by the fact that the corporation is taxed on its profits and on the personal incomes of its shareholders, amounting therefore to a double taxation.  Filings under Subchapter S of the Internal Revenue code can lead to an avoidance of this double taxation, but the corporation must have less than seventy-five (75) shareholders who are screened to exclude certain types, such as non-resident alien shareholders.  Corporations are heavily burdened with formality requirements required by law, such as the obligation to hold annual corporate meetings, take minutes of these meetings, issue elaborate stock certificates and elect its board of directors.

Such, in general terms, are the four different types of business organization.  If you need assistance in setting up your business entity, call the qualified Long Beach Business Formation Attorneys and the Los Angeles Business Transaction Lawyers at Smith & Garg promptly.  Our Long Beach Business Law Attorneys can be reached at 562-590-7300 or via online inquiry.