Four Different types of Business Organizations
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There are many advantages and disadvantages of Business Organizations. Here we will seek out the advantages and disadvantages of Sole Proprietorship’s, Partnerships, Corporations, and cooperative Business organizations. The information provided will also give you an insight on exactly what each Business Organization does and how it works and fits in Business structure.
A lot of businesses start as sole proprietorships. There is typically one person who usually has day-to-day responsibility for running the business and that owns the firms. The Sole proprietors typically own all of the assets of the business and the profits made from it. Sole proprietorship’s also take complete responsibility for any of the liabilities or debts. The advantages of Sole proprietorship’s are that they are: The Easiest and the most inexpensive of Business organizations and ownership. Sole proprietors are in complete control of their business and, within the boundaries of the law; make a decision when they see the time to do so. Another advantage of Sole Proprietorship’s is Profits and revenues from the business go straight to the owner’s Tax return.
Another big advantage of a sole proprietor Business Organization is that the Business is easy to dissolve or get rid of if needed. As there are many advantages of a Sole Proprietorship Business Organization, there are many disadvantages as well. The disadvantages include: Sole proprietors have unlimited liability and are responsible for all liabilities and debts, putting their personal assets and business at risk. Also sole proprietorships could be at a disadvantage in raising funds and are limited to using the funds from personal savings from the business and/or consumer loans. Sole proprietorships may also have a hard time getting big and important employees, or those that want an opportunity to own a part of the business. Some employee benefits such, as the owner’s medical insurance premiums are not directly taken from business’s income.
In a Partnership, two or more people share ownership of a business. The Law does not distinguish between it and its owners like a proprietorship does. The Partners in the ownership should have an agreement that explains who and how the decisions will be made, and how the revenue and profits will be shared, how problems in the business will be solved, how new partners can be accepted and join the partnership, how partners can be bought out, and what will take place if the company were to go out of business or have to shut it down; Companies fold all the time during hard times and you never know when that could be, so everyone in the company needs to know the proper plans to protect there shares and stake in the business. A partnership must also explain who gets what in the company such as capital, stake, and profit in the company at the beginning.
Just like the other types of Business Organizations, Partnerships have advantages and disadvantages as well. Some of the advantages of a partnership would be; Partnerships are easy to start; but creating the Business should take time and developing the partnership agreement should not be rushed, as this is one of the main concepts of a partnership. Partnerships involve more than one owner like stated above, so that means more money invested and more funds for your company to use and have. A partnership business will benefit from other people or partners in the Business who have great strengths and strategies, or complementary skills. Future employees may want to be partners of the business if given the incentive. As it is always great to see the advantages of an organization there are also many disadvantages to.
Some disadvantages of a partnership organization may include; Partners that are together and individually liable for other partners actions within the business. Money has to be distributed to other people in the company, instead of just you. Because it is a partnership and there are others in the business with you, there may be some disagreements, which cause the business to fail. The partnership could fold from one person becoming deceased or opting out of the partnership all together. This could be the most dangerous thing about a partnership because you never know when it could happen. There are many types of partnerships, of all of them the only ones you should consider are, limited partnership and limited liability partnership, Joint Venture partnership, and a general partnership.
A corporation (often times referred to as a C corporation) is an independent legal entity owned by shareholders (.gov) What this means for a corporation is that the corporation it-self, not the shareholders within the company that own it are held liable for the actions and debts the business accounts for. Corporations are harder to run and get going rather than other businesses because corporations seem to have costly administrative fees and big tax and legal requirements. Because of the things a business corporation has to go through, corporations are usually suggested to have, larger companies with multiple employees so you don’t run into big debts within the company, and so you have people to help the business run and operate smoothly. A Corporation has many advantages such as; Limited Liability when it comes to taking responsibility for debts within the business and the actions that take place within the corporation.
Shareholders assets are also protected with a corporation. Shareholders are also only held accountable for their specific share or stake in the company. Corporations also have the ability to Generate Capital. Corporations gain a huge advantage when it comes to raising capital for their business and the ability to raise money and funds through the sale of stock. Corporate Tax Treatment is also another advantage when it comes to corporations, Corporations do their taxes separate from their owners. Owners of a corporation usually only pay taxes on corporate profits and are paid to them in the form of salaries, or bonuses, and any other profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.
Corporations are attractive to Potential Employees. Corporations also provide big benefits, which can attract a bunch of potential buyers and investors. There are many advantages of forming a corporation and it is one of the best ways to go when deciding what business it is you want to have, but along with advantages there are disadvantages as well, such as; Time and Money because Corporations cost a lot and are time consuming at times to operate smoothly all the time. Corporation’s require operating and tax costs that most other business organizations do not require. Double Taxing is another big disadvantage and in some cases, corporations are taxed twice. First, when the company makes a large sum or profit, and they get taxed again when the dividends are paid to shareholders.
One of the most common choices of a company is a Limited Liability Company or often time referred to as an (LLC). How you pay your taxes, your personal liability within the company, and the amount and type of regulations dealt with are extremely important and dependent on the way you form your business. Limited Liability Contracts share some of the same characteristics as a S-Corporation or C-Corporation, although with an LLC you can enjoy more flexibility and they require less paperwork. After you have determined the type of company or corporation you want, look at the advantages and disadvantages of an LLC.
Some advantages include; There are Partners in an LLC and Members want to be treated more like a traditional partnership strictly for tax reasons. Also in an LLC you can file as a Corporation. All of the members of an organization may choose to file as a corporation. LLC’s also require less paperwork and they are limited liability so not one person is held accountable for everyone in the company. Disadvantages of an LLC include, Limited life, which means if a member chooses he or she wants to leave the LLC the LLC no longer exists. This is not like a corporation where members can come and go and the company still ceases to exist.
Sole proprietorships, corporations, LLC’s, and partnerships are all great forms of Business. They all have their advantages and disadvantages, but as a business owner you have to determine which organization best suits your business and its needs. After reading this I hope you can determine what type of Business you have and that would be the best fit for you and your partners if you have any. I hope this helps out and may your business be as successful as ever!
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