List the three main forms of business organization and describe their advantages and disadvantages.

Fin370 finance for enterprise week 1 dq

1. Sole Proprietorship: A sole proprietorship is a enterprise owned and managed by one particular person. The proprietor of the enterprise has full management over the administration, operations and earnings of the corporate. Benefits of a sole proprietorship embrace ease of formation, minimal paperwork, no company tax funds and direct entry to earnings. Disadvantages embrace limitless private legal responsibility for all money owed and obligations incurred by the enterprise in addition to problem in elevating capital because of lack of possession transferability.

2. Partnership: A partnership is a sort of enterprise group that includes two or extra people collectively managing and proudly owning an organization collectively. Partnerships are usually taxed as pass-through entities which means that any earnings or losses circulation immediately via to its homeowners who should then report this revenue on their particular person tax returns. Benefits embrace shared decision-making tasks between companions in addition to higher capability to boost capital because of a number of sources of financing out there from numerous companions concerned within the enterprise itself. Drawback consists of potential disagreements between events which can trigger pressure throughout the group dynamic; moreover every associate is personally chargeable for any money owed/obligations accrued by different members along with their very own proportionate share making it troublesome for an outsider investor becoming a member of down the road with little affect nor authorized safety if issues go awry throughout the journey .

3. Company: An organization is a authorized entity created beneath state legislation separate from its homeowners often known as shareholders who make investments cash into it through fairness choices whereupon every shareholder receives partial possession rights over points associated solely solely them ( i .e voting energy and many others). Firms provide quite a few benefits together with restricted legal responsibility (which means collectors can’t pursue shareholders’ private belongings ought to something go flawed), increased credit score capability enabling entry to bigger quantities/varieties of capital wanted for enlargement initiatives , steady life span even when some founding members depart whereas new ones be part of with out disrupting operations together with alternatives for lowering taxes with sure methods! Disadvantages embrace complicated formation course of involving tons paperwork , expensive charges related to submitting paperwork plus double taxation the place not solely should firms pay taxes however shareholders too once they obtain dividends declared by board members.

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