Explain the Advantages and Disadvantages of the Main Forms of Business Organizations

In: Business and Management

Submitted By manguki
Words 667
Pages 3
The four main forms of business organizations namely sole proprietorship, partnership, C corporation, and S corporation have various advantages and disadvantages in terms of tax implications, legal status, financial obligations, and even set up time and compliance issues.
A sole proprietorship is an individual based business. The advantages of sole proprietorship are various including the easiness to start and dissolve the company, the ability to have personal and complete control over the company, and the ability to retain all profits and include them in personal tax returns. Sole proprietorship has some disadvantages that include the owner’s unlimited liability over the company. The owner is legally responsible for all the debts of the company. Another disadvantage is that it is hard to raise funds because it depends on one person who might not have sufficient funds. It may also be difficult to attract high skills and professional employees because some would want to either have a high ranking position in the company or the chance to buy stock. Sole proprietors are also taxed more than corporation for example corporations pay 15% tax for income up to $ 50,000 while sole proprietors pay 15% (if filing married filing jointly) for income up to 35, 800 only. Financial statements for sole proprietorship are the income statement, the balance sheet, the statement of cash flows, and the statement of owner’s equity.
In a partnership there are two or more owners. Partnership is also easy to establish and has the advantage of being able to raise more funds because there are more than one person involved. Partners can combine their knowledge and skills to be more successful. Partners report their profits in their individual tax returns. The disadvantages of partnership include the possible dissolution of the partnership if a partner decides to withdraw or dies. Another…...

Similar Documents

Advantages and Disadvantages of Each Business Type

...A business (company, enterprise or firm) is a legally recognized organization designed to provide goods and/or services to consumers. Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned. Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has personal liability of the debts incurred by the business. Partnership: A partnership is a form of business in which two or more people operate for the common goal which is often making profit. In most forms of partnerships, each partner has personal liability of the debts incurred by the business. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships. Corporation: A corporation is either a limited or unlimited liability entity that has a separate legal personality from its members. A corporation can be organized for-profit or not-for-profit. A corporation is owned by multiple......

Words: 543 - Pages: 3

Forms of Business Organization

...Forms of Business Organization Forms of Business Organization Have you ever imagined who commences the required capital, takes the accountability of arranging assets and other resources, operates them into practice, and controls and coordinates the operation to earn desired profits? If you search around, you will find a manufacturing business owned and operated by a single individual, who executes all these operations. It is significant for business owner(s) and manager(s) to comprehend the legal environment, in which their business(s) operate, not merely with regard to their own businesses however also as regards to other companies with whom they are doing business. In this context, there are six forms of business organizations, which are discussed below: a. Sole Proprietorship • Control Sole proprietorship is also termed as a sole trader. It is a form of business, which is owned and controlled by single individual and is the simplest form of business organization. The single owner of business has entire ownership and control over the assets and capital invested in the business and he or she is individually responsible (subject to some restrictions) for the expenses and liabilities of the business. • Liability A different advantage, nonetheless, is that the proprietor of this business form is responsible for all the business liabilities. Therefore, if a sole owner business undergo into financial crisis, creditors can originate lawsuits against the sole......

Words: 2123 - Pages: 9

Forms of Business Organizations

...Forms of Business Organizations AIU Online FINA310 Unit 1 DB Charlotte Taylor 06.09.13 Within the business world there are numerous forms of businesses global and domestic. Therefore, choosing the right form of ownership can be hectic. Although, there are numerous choices to make I hope to make the decision less hectic by discussing some advantages and disadvantages of three of the most common forms that may be right and profitable for the business. The three legal forms are: (sole) proprietorships, partnerships, and corporations. Sole proprietorships are owned by an individual who makes all the decisions about the business and therefore, pockets the revenue that is made. Sole proprietorships are the most common form of business that represents one individual owner with few legal responsibilities or requirements. Other advantages of forming a proprietorship is that they are easy to form, operate, and more affordable to form. Simply put, a sole proprietorship is a simple form of business; unfortunately, there are disadvantages for the individual. Some disadvantages are: the loss of tax-free benefits; the owner can be sued since the owner and business have become one; unlimited exposure to the owner; and the owner is responsible for all legal debts and issues that is accrued by the business and risk the loss of personal assets (AIU Online, 2013; Brooks, 2013). Partnerships are quite similar but different in their own way; a partnership is formed by two or more......

Words: 716 - Pages: 3

Business Organization Forms

...ACC 561 Jared Jones Forms of Business Organization Introduction There are four ways that a business can organize itself. The owners and partners in this newly formed business may share in a variety of responsibilities and must decide which form their business should take on. The four basic ways a business can be organized is a sole proprietorship, partnership, C corporation and S corporation. There are a variety of advantages and disadvantages to each. When it comes to Tax implications, Legal implications and Accounting implications this is especially true. Below is an analysis of the various forms of business and the advantages and disadvantages to each, along with various implications associated with taxes, legality, and accounting. Sole Proprietorship Sole Proprietorship is a type of business run by a lone individual. This individual owns the business, and deals solely with all of the losses and all of the profits. The owner also is responsible for all of the liability and has complete control of business operations (Carr, 2011). Typically the business will have an income statement and a balance sheet. The owner through personal income tax return pays all taxes for the business. There are several advantages to this form of business: It is generally not difficult to organize due the requirements of registration not being as harsh to abide to and the financial capital is relatively small. Also, the sole owner has the ability to make all decision for the......

Words: 1353 - Pages: 6

Business Structures; Advantages and Disadvantages

...Business Structures Paper Finance/571 August 5, 2013 Business Structures Entrepreneurship is an excellent opportunity for individuals seeking the independence of running their own business. Starting a business can be a quite daunting task for anyone who is looking to do so. Potential business owners must be ready to invest much of their time and energy to the planning and startup phases of their business. Those activities include conducting research, creating a business plan, securing financing and marketing. Additionally, business owners also have to decide the type of business form that they would like to operate under. There are three main business structures in which entrepreneurs must establish their business. The following paper will detail the three business structures along with the advantages and disadvantages that each hold. Sole Proprietorships The first and most simple form of a business is a sole proprietorship. Within this form of business structure, the owner usually owns and manages all aspects of the business. Additionally, taxes are not paid on a sole proprietorship as a company; instead the owner pays taxes off of the income that is received from the business. As in all business structures, there are both advantages and disadvantages to operating as a sole proprietor. The advantages of sole proprietorships are minimal legal costs of formation; owners have absolute control over decision making and the ease of business......

Words: 738 - Pages: 3

Business Structures: Advantages and Disadvantages

...Business Structures: Advantages and Disadvantages FIN/571 09/23/13 Kenneth Baker Introduction Starting a business can be challenging for individuals. That individual will have to decide which business structure will be right for their business and develop a solid business plan from that structure. There are many business structures available to new business owners, there is sole proprietorship, partnership, limited liability company and corporation. This paper will identify each structure and list the advantages and disadvantages of each structure. Sole Proprietorship  Sole proprietorship has no other owners to divide profits with, which allows a sole proprietor to use company funds in any way the individual see fit. Sole proprietorships are easier to set up out of the other structures and is easy to separate. Some advantages are no business registration is not required, there is no requirement to file formation documents like the person would if their business structure were LLC. Sole proprietorship has easier bookkeeping. The owner and business are one and the same so it is like balancing your checkbook. Any profits are taxed at the owners individual federal tax rate so that person does not have to file a separate business tax. The disadvantages would be the lack of liability protection for the business owner. This means the owner would have to take personal responsibility to pay every business debt and obligation and their personal assets are not protected......

Words: 775 - Pages: 4

Business Organization Form Choice Memo

...Business Organization Form Choice Memorandum Erin P PLAW 350 December 9, 2013 Memorandum To: Professor From: Erin P. Date: October 23, 2013 Re: Business entity form and federal tax regime choice of Erin P Photography ------------------------------------------------- As per our conversation on November 29, 2013, in regards to the firm’s new client, Erin P Photography, I have compiled the following information of your review. In this memorandum you will find that I have thoroughly examined the most viable options of business entity formation for Erin P Photography to show that forming a limited liability company would be the most appropriate choice for our client. I then examined the available options of federal tax regime selection for limited liability companies to find that federal taxation as an S corporation is the most appropriate and beneficial choice for the firm’s new client, Erin P Photography. The client, Erin P, came to the firm last week seeing guidance in legally establishing her own photography business. Ms.P requested that our firm handle the initial legal set up, but did not know what businesses entity form would be the best choice for her new enterprise. Ms. P was also unsure as to how the new business should be taxed under federal guidelines to best suit her interests. Ms. P did provide information as to her new business, Erin P Photography. Ms. P would be the sole employee, and preferably sole owner, of the business at inception and......

Words: 3208 - Pages: 13

The Advantages and Disadvantages of Main Events Software:

...The Advantages and Disadvantages of Main Events Software: The advantages of using main events software would be from using centralized web-based CMS you will have secure remote access from via internet; there is no software to install on your computer this will eliminate desktop maintenances and from this they can maintain and manage all of the electric and physical equipment that will run the programs. Centralized data storage and searching regardless of the location that you are in. This software is used by thousands of user’s every day and expanding to gain more users from new software. There is a full support staff to help with any programs from an on-line issues reporting. From the main events, you can have schedules that will track the data that is needed for any event. From the software, you are able to increase productivity and then lowering administrative cost. There is no annual license fee, and then the organization can significantly reduce the organization communication overhead. Main Event is always developing new software with new features to stay up with new changes in any agency’s needs. Scalable platforms grow when the agency grows. Main events software offers several advantages some of the advantages of this software would be dashboard performances to your staff then would be able to receive results in a graphical format. The staff will be able to customize their interfaces to match their styles with no cost to the company. From this program,......

Words: 747 - Pages: 3

Legal Forms of Business Organization

...Liability Partnership, Corporation Paper Angelika Evanoff FIN/419 July 20, 2015 Mrs. Michele Huss Limited Liability Corporation, Limited Liability Partnership, Corporation Paper The purpose of this paper is to discuss three legal forms of business organization; a limited liability corporation or company, a limited liability partnership, and a class C corporation. The paper begins with a brief description of each structure, followed by a comparison and contrast of each form’s advantages and disadvantages. The author finishes by citing examples in which she would use each type of business structure if establishing a new business. It is important to choose the appropriate legal form of organization because the decision affects owner’s risks, raising money, and how profits are taxed (Gitman & Zutter, 2014). Readers can expect to have a better idea of the various options available to entrepreneurs after reading this essay. Legal Forms of Business Organization The three most popular structures of company organization are the sole proprietorship, the partnership, and the corporation. A sole proprietorship has one owner while a partnership has two or more owners, and a corporation is an entity created by law (Gitman & Zutter, 2014). The forms offer limited liability or unlimited liability to its owners. Various structures that provide limited liability include a limited liability corporation, limited liability partnership, and a class C corporation. A limited......

Words: 1062 - Pages: 5

Essay Advantages and Disadvantages Online Business

...TABLE OF CONTENT 1. ORGANIZATION 2. PROBLEMS 3. AIR POLUTION 4. LEGAL AND REQUIREMENT 5. SOLUTION BASED ON THE PRINCIPLE OF PREVENTION AND CONTROL MEASURES AT WORKPROSES INTRODUCTION OF ORGANIZATION CEMENT INDUSTRIES OF MALAYSIA BERHAD Cement Industries of Malaysia Berhad ("CIMA ") group of companies ("CIMA Group" or the Group) has been involved in the manufacturing and distribution of cement and related activities since 1975. CIMA is 100% owned by UEM Group Berhad which is a wholly owned subsidiary of Khazanah Nasional Berhad, an investment arm of the government of Malaysia. The Group effectively combines people skills and technological capabilities to become the third largest cement manufacturer in Malaysia. The Group also ventures into international market namely Singapore. The Group's total asset as at 31 December 2012 stands at approximately RM2.0 billion while the paid up capital stands are RM 142 million. The Group is divided into three main divisions comprising Cement Division, Ready-Mixed Division and Aggregates & Premix Division. In Cement Division, Cimaco Quarry Sdn Bhd provides the required limestone for Negeri Sembilan Cement Industries Sdn Bhd (NSCI). NSCI leads The Cement Division with cement plants in Bukit Ketri, Perlis and Bahau Negeri Sembilan. The two plants combined, make up a total clinker production of 2.95 million tonnes per annum and a total production cement capacity of 5.6 million tonnes per annum, comprising Ordinary Portland......

Words: 3895 - Pages: 16

“Analysis on Main Advantages and Disadvantages of Devolution and Fiscal Federalism: Is a Hybrid Solution the Cure?”

...“Analysis on main advantages and disadvantages of devolution and fiscal federalism: is a hybrid solution the cure?” All countries in the world, regardless their degree of development, size, complexity or their form of government, must tackle an important choice when it comes to decide how the power is distributed between the central government and the sub-national entities who exercise governmental functions at local level. The two possibilities at the end of the spectrum, i.e.: complete decentralization of powers to local bodies on the one hand and total centralization of administrative and fiscal powers in the central government on the other hand, are often not feasible since both entail downsides that could hinder the sound functioning of the country. The federal system has been applied extensively throughout history, even though with certain modifications and adaptations, in several countries, such as the US, Canada, Germany and Switzerland. It is based on the existence of a principal-agent relationship between central government and a network of decentralized sub-national entities. The latter act as agents on behalf of the central government and they are responsible of carrying out governmental tasks and responsibilities at a local level. In particular, federalism can be extended and applied to fiscal powers, allowing local governmental authorities to retain part of the revenues stemming from tax collection instead of just collecting for the central government,......

Words: 1232 - Pages: 5

Explain the Different Basis of Departmentalization with Their Respective Advantages and Disadvantages

... Q: Explain the different basis of departmentalization with their respective advantages and disadvantages. ANS: Departmentalization involves dividing an organization into different departments, which perform tasks according to the departments' specializations in the organization. Departmentalization as a means of structuring an organization can be found in both public and private organizations. An organization can structure itself into departments in the following ways. Departmentalization by function This is common and popular basis of departmentalization of an enterprise. Under this form, various departments are created on the basis of nature of functions to be performed like production, marketing, finance, personnel etc. A departmental head or manager is appointed to supervise and control the activities of the concerned department. All departmental heads are specialists and experts in their own area of business. When workload of a particular department becomes more, a department may again be classified into sub departments. Since the members working in a department have similar background and interest, it gives rise to specialization which makes manpower more efficient and skilled. Advantages of Departmentalization by Function * It is most logical and natural form of departmentalization. * It brings about specialization which makes optimum utilization of human resources. * It lays emphasis on each and every activity. * It enables top management to exercise......

Words: 1354 - Pages: 6

Business Organization Form Choice

...Subject: Research on the right form of business entity Mr. XYZ, Conducting thorough research on the plausibility of choosing a specific form of legal business entity form for a certain specific business, several facts have been learned. I have been able to understand why it is always very much needed to know and verify the right form of legal structure to be applied to a business before actually setting up the business and carry on with its operation. As the business of my desire must have to be established in the state of Florida, the primary research has been thoroughly based on the legal requirements of setting up any form of business in the concerned state. The desired form of business is a bookstore. The basic task before setting up any business calls for determining the legal structure that will suit the business in an appropriate manner. Several options, in this regard, have been explored by me. This exploration has made it possible for me to ultimately choose the right kind of legal structure befitting the bookstore business. I have explored the different forms like sole proprietorship and partnership, and not the forms like a limited liability (LLC) and a corporation. I have not thought it right to go deep into the structural details of such legal forms of business because I have never thought of investing that much in my business. In the course of my research I did look for gaining more knowledge about sole proprietorship form of business. I have learned......

Words: 3225 - Pages: 13

3 Forms of Business Organizations

...What are the three forms of a business organization? What are the advantages and disadvantages of each form? For a corporation, what is the overall goal of the financial manager? Do you agree with this goal? Why or why not? In this discussion I will attempt to discuss what the three forms of business organizations are and discuss what the advantages and disadvantages are for each form. I will then explain what the overall goal of a financial manager is when it comes to a Corporation and if I agree with these goals. Depending on the types of classes that have been taken or if you are a business owner yourself, some of these questions should be somewhat common knowledge. Reading from the text book, there are three legal categories when it comes to a form of business. The three legal categories are partnership, corporations and proprietorships. Most businesses that are started our sole proprietorships. They are owned and operated by one person. Partnerships are owned and operated by two or more people and corporations are legal entities that exist independent of owners (Brooks, 2010). Proprietorships have many advantages. One is that it is easy and inexpensive to form and dissolve. For less than $100 you can get yourself a business license and be a new business owner and if you decide the next day you want to shut the business down, it is well within your power to do so. All of the profits also go to the owner and have direct control of the business. When it comes......

Words: 802 - Pages: 4

The Advantages and Disadvantages of Incorporating a Business

...In order to mention all the advantages and disadvantages of incorporating a business, first I should try to explain what a corporation is. In 1819, Chief Justice Marshall of the United States Supreme court said: " A corporation is an artificial being, invisible, intangible, and existing only in contemplation of the law." In the Webster's College Dictionary corporation is defined as "an association of individuals, created by law and having an existence apart from that of its members as well as distinct and inherent powers and liabilities." A corporation is divided into many units called shares of stock. The owners of the stock are called stockholders or shareholders. One of the advantages of incorporating a business is that because a corporation has a legal existence, shares can be sold at any time without affecting the operations of the corporation. Also, shares can be bought at any time. Another big advantage of incorporating a business is that corporation have limited liabilities. This means that the corporation is responsible for its own acts and obligations under the law. This characteristic protects the stockholders of the corporation because the only financial loss that they may suffer is limited to the amount invested. Also, the creditors of the corporation can not go beyond the assets of the corporation to satisfy their claims. The stockholders or the shareholders are the ones who have control over the management of a corporation's operation and......

Words: 451 - Pages: 2