Forms of Business Organization PDF
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This document explains different business organization forms in the U.S. including their advantages and disadvantages. It covers sole proprietorships, partnerships, and corporations, and considers factors like liability and cash flow.
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# FORMS OF BUSINESS ORGANIZATION - Large firms in the U.S. are almost all organized as corporations. - Three different legal forms of business organization exist, each with its own advantages and disadvantages for the life of the business, the ability of the business to raise cash, and taxes: 1...
# FORMS OF BUSINESS ORGANIZATION - Large firms in the U.S. are almost all organized as corporations. - Three different legal forms of business organization exist, each with its own advantages and disadvantages for the life of the business, the ability of the business to raise cash, and taxes: 1. Sole proprietorship 2. Partnership 3. Corporation ## CORPORATION - A corporation is a business created as a distinct legal entity composed of one or more individuals or entities. - Legal "person", separate and distinct from its owners with many of the rights, duties, and privileges of an actual person. - Stockholders and managers are usually separate groups. ### Advantages - Ownership can be readily transferred. - Life of the corporation is unlimited. - Limited liability for stockholders. ### Disadvantages - Double taxation, meaning corporate profits are taxed twice, first at the corporate level when they are earned and again at the personal level when they are paid out. ## PARTNERSHIP - A partnership is a business formed by two or more individuals or entities. - General partnership versus limited partnership. ### Advantages and Disadvantages - Advantages and disadvantages are basically the same as those of a proprietorship. ### Primary Disadvantages - Primary disadvantages of sole proprietorships and partnerships are the following, which add up to a single, central problem of the inability to raise cash for investment: - Unlimited liability for business debts on the part of the owners. - Limited life of the business. - Difficulty of transferring ownership. ## SOLE PROPRIETORSHIP - Sole proprietorship is a business owned by a single individual. ### Advantages - Simplest type of business to start. - Least regulated form of organization. - Owner keeps all the profits. ### Disadvantages - Owner has unlimited liability for business debts. - All business income is taxed as personal income. - Life of sole proprietorship is limited to owner's life span. - Amount of equity that can be raised is limited to the amount of the proprietor's personal wealth. - Ownership may be difficult to transfer.
