Question

MBA 5009 Managerial Environment Business Organization Question What is the advantages and disadvantages of the following 1. Sole propretorship? 2. General partnerships? 3. Corporations (C, non-profits and S)? and Franchies? If you had to pick one for your business which one would most pick? why?

Answer 1

1. Sole proprietorship

Advantages

• you are the boss
• you keep all the profits
• start-up costs are very low
• you have maximum privacy in your business
• establishing and operating your business is so easy simple
• it is easy to change your legal structure according to environment & customer demand changes.
• you can easily wind up your business

Disadvantages

• retaining high-calibre employees can be difficult
• it can be hard to take holidays
• you’re taxed as a single person
• the life of the business is limited.
• you have unlimited liability for debts as there’s no legal distinction between private and business assets
• your capacity to raise capital is limited
• all the responsibility for making day-to-day business decisions is in your own hands

PARTNERSHIPS

Advantages

• There is an opportunity for income splitting, an advantage of particular importance due to resultant tax savings
• partners business affairs are private
• There is limited external regulation
• it’s easy to change your legal structure later if any circumstances change.
• two heads (or more) are better than one
• your business is easy to establish and start-up costs are low
• more capital is available for the business
• you’ll have greater borrowing capacity
• high-calibre employees can be made partners in your firm

Disadvantages

• If partners join or leave, you will probably have to value all the partnership assets and this can be costly.
• each partner is ‘jointly and severally’ liable for the partnership’s debts, that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
• there is a risk of disagreements and friction among partners and management
• the liability of the partners for the debts of the business is unlimited

S Corporation

Advantages

The advantages of an S corporation often outweigh any perceived disadvantages. The S corporation structure can be especially beneficial when it comes time to transfer ownership or discontinue the business. These advantages are typically unavailable to sole proprietorships and general partnerships. S corporation advantages include

Pass-through taxation

Protected assets

Straightforward transfer of ownership

Tax-favorable characterization of income

Cash method of accounting

Heightened credibility

Disadvantages

Tax qualification obligations

Formation and ongoing expenses

Calendar year

Taxable fringe benefits

Less flexibility in allocating income and loss

C CORPORATION

The most important benefit of all is the fact that C Corps provide shareholders with limited liability in terms of business losses. Since the C Corp operates as a separate and distinct legal entity, the owners and shareholders of the corporation cannot be held liable for losses or liabilities incurred upon the business.

• C Corps tend to have greater credibility when obtaining financing as well as working with suppliers and other vendors.
• A C Corp can remain in business after the original owner leaves. This is due to the fact that the corporation operates separately from any and all owners.
• C Corps can deduct business expenses along with employee benefits during tax season.
• C Corps also have lower tax rates than S Corporations.

Dis advantanges

• C Corps cannot deduct for corporate losses; rather, the losses must be reported on the shareholders’ personal tax returns.
• Government oversight of C Corps is greater due to the complex tax laws and higher protection provided to owners of such corporations.
• If the business itself doesn’t need to raise capital through shares, then people generally find that operating an S Corporation provides for reduced taxes.
• Government oversight of C Corps is greater due to the complex tax laws and higher protection provided to owners of such corporations.
• Double taxation. The C Corp is taxed at the corporate level, and the owners of the company are taxed on dividends paid from the corporation. Therefore, the corporation will pay corporate income tax, and the owners and shareholders will pay personal income tax on such dividends.

	"S" CORPORATION	"C" CORPORATION
Sales	$100,000	$100,000
Less - General expenses	$50,000	$50,000
Less - Officers Salary	$35,000	$35,000
Taxable income	$15,000	$15,000
How and where taxable? j every business has its own advantages and disadvantages,so choose the type of business you want to do according to funds available with you	Directly to shareholders at their applicable tax rate according to their ownership %	Directly to the corporation\