Question

1. Why are so many small firms sole proprietorships?
2. Find an example of a firm that operates as an LLC. Why do you think the owners of this firm chose this form of business over others?
3. Why might different forms of business be more likely to rely on a different organizational structure?

Answer 1

1. Why are so many small firms sole proprietorships?

Sole proprietorship allows for a clear understanding of ownership, management and creates a better understanding of the vision and mission with which the business was started. The aspect of control remains with the individual, without the need to share power, which also means that they are a solely responsible entity for the business decisions, its profit and its loses, which is better for individuals. Small businesses require quick decision making and sometimes, they cannot afford to pay individuals to act as managers to govern the entire operation. Individuals also find it easier to perform taxation because they are not separate from their business and therefore, are taxed as a single entity. The easier implementation, hierarchical advantages, lack of resistance from partners and the ability to determine every decision as one visualizes provides a clearer advantage to a sole proprietorship

2. Find an example of a firm that operates as an LLC. Why do you think the owners of this firm chose this form of business over others?

LLC (Limited Liability Company) companies are those companies whose owners are not personally held liable for the debts or liabilities of the company. One of the examples of LLC is Amazon.

A company chooses to remain LLC because of the following reasons:

1. Owners are not held personally liable for the liabilities or debt of the company.

2. It involves less paperwork to set-up and manages.

3. It does not have to held annual meetings.

4. There are certain tax relaxations provided to LLC.

5. It has a flexible profit distribution.

6. A good amount of privacy protection.

3. Why might different forms of business be more likely to rely on a different organizational structure?

There could be various types of organizational structure such as matrix, functional, line or divisional. Some may be decentralized in nature while some centralized. Some may resort to the Brick-and-mortar system while some other may cater to the digital platform. In fact, some organizations may have a blend of two or more structures as well. Different forms of business shall more like rely upon the organizational structure because the purpose of establishing the business and the nature of operations in that business, shall depend upon the chosen characteristics of an organization structure. For example, an S-Corp may prefer functional or divisional structure for its ease in operations while partnership firm may prefer matrix organizations, with multiple partners dealing with same set of subordinates under them. Besides, the financial liability and expenses in each type of organizational structure shall also call for a certain type of business form. For example, matrix structure is easier to be undertake in terms of expenses than that of line and staff organization. Accordingly, the form of business could be decided, keeping on mind the financial liability angle attached to the same. Thus, in this way, different forms of business be more likely to rely on a different organizational structure.