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Business Entity Matrix

1: Partnership versus Sole Proprietorship

Management Control Financial Liability Tax Risks
Sole Proprietorship The owner has control over all aspects of the business Complete responsibility for all business debt and obligation Complete responsibility for personal taxation All risks are the owner's.
Partnership Control is shared, and more people are there to work on critical decisions. The responsibility (and personal risk) is shared. A limited liability company is also possible. Personal tax is separately handled by each partner (same as sole proprietorship) Less risk due to sharing between partners, though risks related to fraud and trust arise.

The positives and negatives of each type of business are presented in the above matrix. Someone who is considering between a business venture with either sole proprietorship or partnership has to weigh up the chance of success and financial gain, with the chance of failure and bankruptcy. The advantages of a partnership include sharing the financial costs and risks with other partners. Also, a partnership can register the company as limited liability, which means that responsibility lies only with the finances included by each partner.

Partnerships have their fair share of risks however. Not only is total control not granted to any one member, there is the threat of power struggles, personal agenda and betrayal, which is common in partnership enterprise. Having said this, the risks involve the type of people in the partnership, and having trusted friends means that you can share the liability and risks while minimizing the aforementioned threats. An LLC also lowers the threat of loss of money in lawsuits. Given this fact, i would personally prefer partnership with friends who are trusted.

2: Independent contractors versus dedicated employees

Compensation Benefits Control Motivation
Dedicated Employees Compensation is larger due to employee's reliance on the company Employers have to conform to policy and provide benefits, such as pensions, health insurance etc for employees. Control is easier over employees, due to first hand interaction Employees are more likely to be motivated to do their best, due to the rewards of bonuses, promotion etc.
Independent Contractors Compensation is smaller due to contractor earning from other sources Contractors settle benefits independently Control is harder, due to middlemen between the company and the contractor Less reason and incentive to be motivated

The major advantage of hiring a sub contractor is that lower costs are involved, due to the selling of products of separate businesses. There are also further advantages. Contractors have expertise in the market and local consumer demographic, which can be very valuable to start up businesses ("Manufacturers' Agents"). They have plenty of firsthand experience in what the customer wants, and knowledge of how to properly pitch products. However, contracting means loss of control over the company sales force, and contractors may not always act totally in the best interests of the company, or use sales styles that do not align with the wishes of the company. Contractors will work for multiple firms, and so will not be able to spend all of their time for the products of the business in question. If they find that the business in question is providing less profit than products from other businesses, they may start to push the latter products more. Given these points, i would personally prefer an in-house sales team, is i believe the extra control associated with dedicated employees outweighs the benefits of independent contractors.


"Manufacturers' Agents". (n.d.). Retrieved March 1, 2006, from

Venexus. (2005). Business Entity Matrix. Retrieved March 1, 2006, from