Dec 13, 2017 in Business

Forms of Business Organizations

Business organizations may be organized in one of several ways being owned and managed by a single individual or group of people who may form a partnership firm or a joint stock company. Such arrangement of management and ownership is considered to be a form of a business organization. A business organization may take such forms as sole proprietorship, partnership, corporation and Limited Liability Company.

The above mentioned forms of business organizations have the following advantages and disadvantages:

  1. Sole Proprietorships

Advantages: flexibility, secrecy, taxation, ease of formation, minimal legal costs, minimum legal restrictions, relationship with customers, legal status, credit standing, complete control over business, etc.

Disadvantages: all responsibilities and business decisions are to be taken by a sole proprietor, investors do not usually want to invest, limited source of fund, unlimited liability, managerial abilities, continuity, expansion, operational disadvantage and others.

  1. Partnerships

Advantages: business is easy to establish, greater borrowing capacity, more capital available, opportunity for income splitting, limited external regulation, less responsibility, labor division, private partners’ business affairs and others.

Disadvantages: troubles in investing, accounting, profit sharing and resource management, conflicts over business and money management, lesser control over employees, reduction in authority, risk of disagreements and friction among partners and management, inability to make quick decisions, etc. (Partnership, 2011).

  1. Corporations

Advantages: shareholders have limited responsibility and are liable only for investment in company shares, possibility to deduct a benefits package, ability to obtain more capital through the action sale and others.

Disadvantages: governmental agencies monitoring, higher overall taxes, company incorporation, more time and money, etc.

  1. Limited Liability Companies

Advantages: ability to choose to have profits distributed, owner protection, reduction in paperwork, absence of double taxation and others.

Disadvantages: longevity of the company, not the best business entity to set up in case of share distribution and publicity, new challenges related to organization files taxes, etc. (Scotto & Matthews, 2013).

The most suitable ownership form for an aggressive entrepreneurial firm would be a limited liability company. It is explained by the fact that a new aggressive venture is likely to take risks that an established firm would not take. An owner would reject the idea of personal wealth risk on a venture that had a failure risk (Kershaw, 2009). Establishment of a business as a limited liability company would limit the owner’s personal losses. 

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