Question

Describe the different forms of business structure (sole proprietor, general and limited partnerships and private and public corporations). Include the positives and negatives of each form of business.

Answer 1

Sole Proprietorship : It is a form of business wherein the business is owned, operated and controlled by one person. It is easy to start & dissolve. Not many legal requirements and expenditures are involved in setting up the business. Since the owner is responsible for all the profits and losses, he is more willing to put in his efforts.Decisions can be taken quickly because no red tapeism is involved and the owner is solely responsible for all the decisions and the consequences of those decisions. However,an individual will have limited funds to start the business and thereefore a huge capital investment cannot be made. Also, the owner is personally liable for all losses and loans of the business.A proprietor has a limited skill set and knowledge,

General partnership : A general partnership is when two or more individuals or parties work together to share profits and losses of a business. It requires very less paperwork and can be formed easily. The structure is simple and every partner brings a specific strength and core compentency to the business. A partnership can be easily dissolved at any time. However, a general partnership is highly unstable because it can be dissolved at any time and any partner can leave the business whenever he desires to do the same. Also, the partners have unlimited liability and their personal assets can be used to repay pending loans.

Limited partnership : A limited partnership is where two or more parties come together in order to share profits and losses of a business and their liability is limited to the amount of capital contributed by each one of them. It is easay to attract investors since there is limited liability. However, to come into existence a certificate is to be obtained from the state which involves state filing fees.

Private Corporation : It is a firm whose shares are not traded publicly and these shares are held by a relatively small number of shareholders. A privately owner corporation does not have to file financial or informational documents with the Securities and Echange Commission. Information regardging compensation structure and other sensitive information can be kept under wraps. However, it limits your ability to raise capital as you cannot issue shares to the public.

Public Corporation : A public corporation is owned by the government. A public corporation enjoys flexibility and independence in operations since it is an autonomous set-up. They are used to influence economic activities as they directly boost a country's output. They formulate and implement procedures and policies which lead to public welfare. Quick decisions are taken in public corporations since red-tapeism and bureaucracy are reduced. They can achieve economies of scale since they work on a large scale. However, a public corporation has to keep prices low and therefore it can become a financial burden. Also, power can be misused by a public corporation since they technically operate as monopolies.