Assignment:
Although there are many forms of businesses, there are three primary forms one of which is the sole proprietorship. This form of business is one in which the owner works alone without a partner (Valuation Academy, 2018). Some advantages of the sole proprietorship include:
- Setting up this form involves no filing of papers which makes the set-up procedure uncomplicated.
- This form of business requires no registration
- There is the use of uncomplicated tax forms when filing taxes
- The process of liquidating assets is simple upon the death of the proprietor
There are also some disadvantages which include:
- The exposure to unlimited liabilities enhances the possibility of losing personal assets upon losing lawsuits
- The owner cannot receive or solicit money from investors
- The owner has to rely on his/her savings, home equity loans, or personal loans from friends or relatives due to the difficulty of acquiring business loans.
The second primary form of business is the limited liability company (LLC) which is more complex than the proprietorship yet not as complicated than a corporation. Some of the advantages include:
- There is a limited liability along with the protection of the owner's assets from seizure due to lawsuits related to unpaid debts.
- Owners have the choice of paying their taxes through proprietorships or corporations.
- The does not require a board of directors.
- The business may have an unlimited number of shareholders.
Some disadvantages include:
- Legal and accounting expenses are more significant than they are for proprietorships.
- There is a state requirement for filing articles of incorporation.
- It is necessary to create an operating agreement which defines management authority as well as decision-making limits.
- The company may stop existing after the death of the owner except when there are specific provisions in the operating agreement.
The third primary form of business is the corporation which is under the ownership of shareholders and overseen by a board of directors elected by the board with the power to enter into contracts and make business loans as well as paying federal taxes along with being subject to lawsuits and loss of corporate assets (Valuation Academy, 2018). When it comes to the shareholders, they profit from dividends without being responsible for corporate liabilities (Valuation Academy, 2018). Advantages include:
- There is the ability to sell stock as a means of raising additional capital
- Selling their stock enables shareholders to transfer ownership
- There is a limit on the owners' liability related to their stock holdings
Disadvantages include:
- More regulations restrict the company as well as closer governmental monitoring along with being more expensive to incorporate than other business forms
- There is taxation on the corporate profits as well as shareholders' dividends which shareholders report as personal income
References:
Valuation Academy. (2018). Advantages and Disadvantages of Business Organization Types.
Woodruff, J. (2018). The Advantages and Disadvantages of the Different Types of Business Entities.