Sole proprietorships, partnerships, and corporations are the three main forms of business organization.
Sole proprietorships are businesses owned and operated by a single individual. They have the simplest structure and are easy to start and manage, but the owner has unlimited liability for the debts and obligations of the business.
Partnerships are businesses owned and operated by two or more individuals. They have a more complex structure than sole proprietorships and require a written partnership agreement outlining the terms and conditions of the partnership. Partners in a partnership have unlimited liability for the debts of the business.
Corporations are legal entities that are separate from their owners. They have a complex structure and require compliance with state and federal laws, including the requirement to hold annual shareholder meetings and file annual reports. Owners of a corporation, also known as shareholders, have limited liability for the debts of the business and are not personally responsible for its obligations.
In terms of accounting practices, the same principles are used for all three forms of business organization. However, partnerships have unique accounting practices related to the partners' capital and drawing accounts, division of income or loss, and changes in ownership. Corporations also have unique accounting practices related to the issuance and retirement of stock and the distribution of dividends to shareholders.