Question

1. Define sole proprietorship and partnership. Discuss the differences between the two organizational forms and provide an example of each. The example should be a real business.

2. Define and discuss the corporate form of organization. Include advantages and disadvantages of this organizational form in your response.

3. Discuss how a business entity can evolve from one legal form of organization to another. Why might this be necessary and important to the company?

4. Which legal form of organization would you use for your product/service developed in this class? Substantiate the reasons supporting your decision.

Answer 1

Sole proprietorship is the simplest form of business having a single owner responsible for paying personal income tax on the profits of the business and is also, responsible, for all liabilities of the business. On the other hand, a partnership has two or more partners who share ownership of the business and distribute profits among themselves. In its simplest form, all partners contribute funds and are responsible for liabilities.

So, the main differences between a sole proprietorship and a partnership are the number of owners; the decision makers (sole proprietorship - the single owner takes all decisions; partnership - is a shared business so decision making is also shared between partners); the liability is owned by one in sole proprietorship while it is shared by all partners in a partnership, and lastly, the owner of the sole proprietorship gets all profits while in a partnership, it is shared between partners.

A local business in your neighborhood (such as a small restaurant, newspaper vendor, etc) is an example of a sole proprietorship. Any medium sized operation (such as a small lawyer firm or a plumber business) can be an example of a partnership.