Question

What are the main ways of organizing a business?

What kind of business organization might be suitable for a plumber? Explain.

Why might someone choose to organize as an LLC instead of a sole proprietorship?

In legal terms, what is the relation between a corporation and those individuals who found the corporation?

In what ways does the structure of a corporation protect its owners from absorbing ethical responsibility for the company’s actions?

How can corporations raise money?

Answer 1

1. Ans. The main ways of organizing a business are - •Sole proprietorship ( all profits and losses are subject to a single person; as the business is owned and run by a single person )

• Partnership ( Profits and losses are shared between 2 or more persons, called as partners )

• Corporation ( An artificial legal person having separate legal entity )

• Limited Liability Corporation/Company (Hybrid form of both corporation and partnership ). etc.

2. Ans. The kind of business organisation that is suitable for a plumber is - Sole proprietorship. Because,

• This business structure is less expensive. • Business structure is completely centered on a single person i.e. the owner. • Very less legal formalities. • Owner has the complete control over the business operation / decision making. He/she can do whatever he/she wants. • It creates a sense of belongingness.

3. Ans. Someone might choose to organize as an LLC instead of sole proprietorship because,   limited liability is one of the main advantages of an LLC over a sole proprietorship. In a sole proprietor, where the owner is solely responsible for the debts and liabilities of the business, in an LLC it’s the LLC that’s responsible for the business’s debts and liabilities. Thus, member is not personally liable for the debts of LLC. It acts as a protection for the members of the LLC. Other advantages such as more market credibility, easier to obtain financing etc.

4. Ans. In legal terms, the relation between a corporation and those individuals who found the corporation is known as - ‘ promoters '. The real owners are called ‘ shareholders ' .

5. Ans. The structure of a corporation protect its owners from absorbing ethical responsibility for the company's action in following way - • A corporation incorporated under law, being a separate legal entity distinct from its owners treated as artificial legal person in the eyes of law and can act in its own name. • Just like a person, a corporation can sue and can be sued in it's own name. So, here the liability of the members are limited. It acts as a protection to the members of the corporation.

6. Ans. Corporations can raise money in the following ways -

• Issuing bonds

• Borrowing from financial institutions

• By selling stocks

• By reinvesting profits etc.

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