BUSINESS TYPES

Business Types

Business Types

Introduction

Broadly speaking, there are three principal forms of business organizations.

A.Sole Proprietorship

B.Partnership

C.Corporation (company)

Sole Proprietorship

The first type is the Sole Proprietorship. The sole proprietorship is the simplest form of business organization, the easiest to begin, and has the most flexible structure in terms of its overall operation. To start a proprietorship one rarely requires any government approval. Usually, all you have to do is to find out if a license required and whether you required to pay any local or state fees. A sole proprietorship is a business owned and controlled by ONE individual. It has no legal existence in and of itself apart from that of the individual operating it.

The sole proprietor operates his business free of many of the restraints placed on other forms of business organization and he alone is responsible for everything that goes on with that business. The goodwill generated by his business will depend almost entirely upon his personality and professional skills. Being self-employed, his income will largely depend upon his continued efforts in the business. The business and the owner are essentially inseparable from one another (Ackerman, 2005).

Advantages of a Sole Proprietorship

A.It is easy to start.

B.You can personally benefit from all of the profits.

C.You enjoy comparable freedom from governmental agencies.

D.You are given a number of tax advantages.

Disadvantages of a Sole Proprietorship

A.You have unlimited liability for all business debts.

B.You must be qualified at all levels of business.

C.Employees have less opportunity for advancement

D.More difficult to attract and hold onto talented employees.

E.Business depends entirely upon you for continuation.

The Partnership

The second form of business organization that we shall discuss is the Partnership. A partnership is an association created between at least two persons who may contribute capital and/or skills and services toward a business. In addition, all persons participating in the partnership agree to share proportionally in its profits and losses. Most experts will agree that the partnership is the most risky of all forms of business organization. This is often the case because human differences inevitably occur between partners causing the relationship to be strained. It is estimated that only three out of every 100 partnerships last the working lifetime or individuals involved.

Though numerous partnerships operate under an oral understanding or agreement between its members, fair business practice calls for a carefully drawn partnership agreement which clearly sets forth all of the partner's rights and responsibilities. This contract (referred to as the Articles of Partnership) ...