Question

List the advantages and disadvantages of the three different types of business organizations

The (sole proprietorship- partnership -corporation) is a business owned jointly by two or more individuals. The advantages of this form of business are that it involves more than one person in the business and all the profits are distributed to only this set of individuals. The larger number of owners usually increases the amount of capital and talent available over that available to the sole proprietorship. The disadvantage of this form of ownership is that the personal assets of the owners are commingled with the business assets and could potentially be required to settle business debts. Other disadvantages of this form of ownership is that taxes are paid at personal income tax? rates, which may be higher than corporate tax rates and transference of ownership may be potentially difficult if one of the owners dies or wants to leave the business.???(Select from the? drop-down menu.)

Answer 1

Proprietorship Business- When there is only one owner of the a business then this business is called as Propietorship business. Only he/she operated the business and takes all decision.

Advantages

1. It is very easy to take decison. There is no question of dispute in taking decision and implementing.
2. It hax tax advantage because all the profit goes to owner and he/she has to pay only income tax. Corporate tax are not applicable here.
3. This type of business have to follow very less rules and regulations.
4. Its very easy to dissolve if something owner faces difficulties in running the business.

Disadvantages

1. It is very difficult to raise capital for a single person. Lenders generally don't lend money easily to a business having only one owner and Loan is given at higher inerest rate.
2. Owner has all the obligations of the businesses. i.e. unlimited obligations.
3. Hiring of quality employees becomes difficult because ownership of business can not be shared. This is very important point because now it has become a trend to give new employee some share of business.

Partenership- A business is said be partnership business if two or more people own that business with a goal of making profit. Very less documentation is required to form this type of business. All owners share profit generated from the business.

Advantages

1. Hiring of quality employees becomes very easy because new employees can be given some share of business.
2. It is easier to raise capital compared to proprietorship business as more than one person are involved in this business.
3. It is relatively easy to form partnership but it take much time to develop a parternship agreement.
4. When it comes to tax related benefits, this type of business gets similar benefits compared to proprietorship business. Corporated tax is not applicable here.
5. Rules and regulations are less compared to Corporations.

Disadvantages

1. Profit sharing can be one disadvantage here. Each partner gets lesser share of profit.
2. Disputes/conflicts can occur when taking desicions and implementing these decisions.
3. Each partener is liable for the debts and obligations of the business.
4. Elimination of one partner automatically dissolves the partnership agreements and new agreements must be developed in this case.
5. As described in the question, transference of ownership may be potentially difficult if one of the owner dies or wants to leave the business.

Corporation- A corporation is owned by multiple shareholders. Profit of a corporation can be shared among shareholders through dividends or other similar means. Shareholders can also gain through appreciation of stock.

A corporation is much more complex and expensive to set up compared to other two type of buisness. A corpororation is legally considered as independent enitity which is separate from the shareholders. Therefore Coporation liabilities and asstes are separate from its owners assets and liabilities.

Advantages

1. Raising of capital is very easy compared to other two types of business.
2. Transfer of ownership is very easy. Shareholders can transfer the ownership by selling stocks.
3. A corporation can retain all the profit without sharing it to shareholders. Retained profit can be used for different purposes like expansion etc.
4. Corporations are not required to dissolve when a owner dies or leaves the business.
5. Liability protection for owners of the corporation

Disadvantages

1. The filing and administrative requirements are higher than other types of business organizations.
2. Corporations often have to pay higher overall taxes.
3. Dividends paid to shareholders are not deductible from the corporated taxes. Therefore this part of income is taxed twice. Shareholders has to declear dividends as personal income and hence he/she has to pay income tax.