Question

In the context of corporate governance, discuss and contrast three types of legal forms of firm

Answer 1

Corporate governance is the combination of rules,processes or laws by which business are operated,regulated or controlled.

There are three basic legal form of firm

i)Sole proprietorship

ii)Partnership

iii)Corporation.

A sole proprietorship is a firm that is owned by one person.From a legal perspective,the firm and its owner are cosidered one and the same.This means that all profits are the property of the owner and also he is personally resposible for the firm's losses and debts.

In a partnership,two or more partners share ownership of a firm.A partnership is similar to sole proprietorship in that the partners are the only beneficiaries of the firm's profit,but they are also responsible for any losses and debts.

Most large firms are organised as corporation.A key diiference between a corporation on the one hand and a sole proprietorship and a partnership on the other is that corporation involve the separation of ownership and management.Corporations sell shares of ownership that are publically traded in stock markets and they are managed by professional executives.