Forms of Business Organization

Only available on StudyMode
  • Download(s) : 105
  • Published : May 14, 2013
Open Document
Text Preview
John Walter O. Boisvert TM 102 (12:20 – 2:00)

FORMS OF BUSINESS ORGANIZATION

1. Sole Proprietorship - is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name.

ADVANTAGES:
* Capital - Sole proprietor contributes whatever capital needed. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's.

* Management - Sole proprietors need to comply with licensing requirements in the states in which they're doing business, as well as local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than those of corporations, allowing sole proprietors to open a business quickly and with relative ease - from a bureaucratic standpoint. It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.

* Taxes - In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.

DISADVANTAGES:
* Unlimited Personal Liablility
There is no legal distinction between the business and owner in a sole proprietorship, and therefore any assets owned by either are financially at risk. Debts, losses or lawsuits that can't be paid by the business will need to be covered by the owner even if that means using personal assets, including his home.

* Limited Ability to Raise Capital
Sole proprietorships are unable to sell interest or shares in the business as a means of raising money. They also lack the clout other forms of business structure carry, making it more difficult to obtain loans and other funding resources.

* Limited Expertise and Growth Potential
Sole proprietors are in charge of every aspect of the business, including product and service development and delivery, marketing, accounting and customer service. Most sole proprietors are knowledgeable about their business product or service, but have limited knowledge or experience in the other areas. This lack of expertise can slow and even limit growth. Further, there is only so much a single person can accomplish. At some point, owners max out the amount of time they can spend on business activities and can't grow without adding more manpower to the business.

* Limited Life Expectancy
The success of most sole proprietorships is so closely tied to the owner that the business may be unable to survive the loss of the owner through illness or death. While sole proprietorships can be sold or transferred to heirs, they often struggle to survive because the new owners lack the knowledge to keep them going or the customers' loyalties were to the original owner and not the business.

SOURCE/S: 2007, http://www.nytimes.com/allbusiness/AB4113314_primary.html

Truex, 2010 http://smallbusiness.chron.com/disadvantages-sole-proprietorship-business-376.html

2. Partnership - A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.

ADVANTAGES:
* Capital - Due to the nature of the business, the partners will fund the business with startup capital. This means that the more partners there are, the more money they can put into the business, which will allow better flexibility and more potential for growth. It also means more potential profit, which will be equally shared between the partners.

* Management - This organization...
tracking img