Student: G Toe Washington
November 14, 2011
This is an analysis of the four different forms of business organization. It is a review of the advantages and disadvantages of each form, including the tax, legal, and, accounting implications that surround them. The different type of financial statements associated with each form of business organization is also discussed. In this paper, based upon the synopsis that the government has released funds for creating small businesses, a form of business is chosen by the class member in explaining his business idea. It then concludes with why that particular form of business was selected.
There are four types of business organizations that relate with the various businesses and their range in size and functions. The owners or partners establishing a company might share tax or legal liability with the business entity depending on how the business is formed.
When one is tasked with starting a business, various options must be considered regarding what form of business organization is best suited to the operational plan of the perceived business and to what degree of liability one wish to assume. It is with this notion that I evaluated the four forms of business organization and hence made a choice that best suit my business aspiration. Below is an analysis of the various forms of business.
This is a form of business run by an individual, who owns the business, and has all of the profits and losses of that business. The owner also has all the control and all the liability from the business operations. The business normally with have an income statement and a balance sheet. All taxes for the business are paid by the owner through personal income tax return.
The advantages are: (1) It is easy to organize because financial capital is small and registration requirements are not difficult to comply with. (2) The owner makes all decisions and enjoys substantial freedom of action. Possible conflicts are minimized. (3) The owner has added incentive to make the business grow because all profits are acquired by him.
The disadvantages are: (1) Financial resources are not enough to transform the business into a large-scale business and because of its small assets and high mortality rate, banks are reluctant to grant big loans. (2) The owner has unlimited liability; in case of a loss, all personal assets are subject to claims by creditors. (3) It has no benefit from specialization in business management.
This is a business formed by two or more individuals to generate a shared profit. Just like the Sole Proprietorship, the taxes of the partnership are identical to the personal taxes of its partners. The partners agree to combine their resources, (money, management, and material) and also to share their profits and losses. The financial statements associated with this form of business are, the statement of partner’s equity, income statement, and, a balance sheet.
A General Partnership can have silent partners, who provide financial capital, but do not participate in management, and also industrial partner, who does not contribute financially but is responsible for its management.
Advantages are: (1) It is easy to organize. The legal requirements to its...