Major forms of business are Sole Proprietorship, Partnership, Limited Liability Company and a Corporation
Differentiate among the major forms of business organization and describe what you consider to be the top 2 advantages and disadvantages of each form. Address the regulatory and financial statement differences of each form of business.
Sample Solution
Sole Proprietorship:
Advantages: Easy to form, with minimal start-up costs and paperwork. All profits and losses belong to the owner, who can make all decisions without consulting anyone else.
Disadvantages: Unlimited liability - the business’s debts are the sole responsibility of the owner, who is personally liable if anything goes wrong. It is also difficult for a sole proprietor to raise large amounts of capital due to their limited resources.
Regulatory/Financial Statement Differences: There are no required regulatory filings or financial statement disclosures for a Sole Proprietorship although it may be necessary depending on the business’s operation or type of goods or services being produced or sold.
Partnership:
Advantages: Partners share in both profits and losses, which allows for more capital than what would be available from one person alone; there is also flexibility in how partners can agree on making decisions within the partnership agreement as well as tax savings from pooling expenses and deductions among partners. Disadvantages: Just like with a sole proprietorship, a partnership has unlimited liability so each partner can be held responsible for any debts incurred by the business; further, disagreements between partners can easily disrupt operations if not handled quickly and effectively.