Question

1. What are the 4 most common formations of Business?

2. What are the advantages and disadvantages of a Partnership?

3. What are the advantages and disadvatages of a C Corporation?

4. What are the advantages of a Franchise?

5. What are the disadvantages of a Franchise?

6. If you could start a business, what business would you start and what form would you take? Why?

Answer 1

1. 4 most common formations of business are -

i) Sole proprietorship - In this single person runs the business. No separate legal entity as owner and business are one as per law.

ii) Partnership - Two or more persons agrees to do a business and shares profits and losses in agreed proportion.

iii) Corporations - As per the law Corporations has its own separate entity and owners and corporations are two distinct entity.

iv) Limited Liability Companies - This is a combination of partnership and corporations where two or more persons agreed to do business but agreed to bear limited losses.

2. Advantages and disadvanatges of Partnership

Advantages

1. More capital can be raised due to shared resources.

2. All the profits are distributed among partners only.

3. Economical to set up a business.

Disadvantages

1. Each partner has to bear losses of the company, in case any partner is not capable to bear, then losses will get transfer to other partner.

2. If two partners are there then partnership ends as one partner decides to exit.

3. Difficult to find new partners.

3. Advantages and Disdvantages of C Corporation

Advantages

1. It gives an option to choose as many owners one want to. Thousands and lakhs of person can become owner in this.

2. It has less tax liability as it enjoys deductions and exepmtions.

3. Due to unlimited ownership it can enjoy the perpetual existence

4. It is easy to transfer the business in other hands.

Disadvantages

1. It suffers from double taxation, as corporation incomes are taxed first and then shareholders income are also been taxed.

2. Too many formalities such as articles of association and bylaws makes it complicated.

3. It has to fulfill many legal formalities.

4. Advantages of Franchise

1. Risk of business failure gets reduced.

2. It enjoys the established market share so little effort required to attract customer.

3. The probability of success is higher than other business.

4. It requires less capital.