forms of business organization

• Internal users of accounting information include owners and managers
• External users of accounting information include investors, creditors, customers, employees, suppliers, tax authorities, government, and the general public
• Four forms of business organizations: sole proprietorship, partnership, corporation, and cooperatives
• Sole proprietorship:

  • Unincorporated business with one owner
  • Easy to establish and dismantle
  • Advantages:
  • Easy to form
  • Effort-reward relationship
  • Full control
  • Quick decisions
  • Economical operations
  • Personal touch
  • Simple, dynamic, and flexible
  • Disadvantages:
  • Small in size
  • Limited professional skills and talent
  • Unlimited liability
  • Limited life
  • Limited capital
• Partnership:

  • Contract entered by two or more people
  • Contributions can be money, property, or industry
  • Advantages:
  • Bridges gap in expertise and knowledge
  • More cash and property
  • More business opportunities
  • Moral support
  • New perspectives
  • Disadvantages:
  • Loss of autonomy
  • Emotional issues
  • Future selling complications
  • Unlimited liability
• Corporation:

  • Artificial being created by operation of law
  • Advantages:
  • Limited liability
  • Big source of capital
  • Independent management
  • Disadvantages:
  • Owners might not be known
  • Ownership transfers
  • Double taxation
  • Forming costs more
• Cooperatives:

  • People-centered enterprises owned, controlled, and run by members
  • Advantages:
  • Lower cost
  • Further marketing reach
  • Democratic organization
  • Disadvantages:
  • Big investors not attracted
  • Lack of membership and participation
• Sole proprietorship is owned by one person that builds a business and it is east to establish and dismantle
• Partnership is a two or more person bind themselves to contribute money, property or industry to a common fund, with dividing the profits among themselves
• Corporation is an artificial being created by operations of law, having the right of succession and the powers, attributed and properties expressly authorized by law
• A cooperative is a voluntary association of persons united to meet their common economic, social, and cultural needs and aspirations through joint efforts in production, processing, and marketing of goods, rendering services, or engaging in any activities for mutual benefit.
• The advantages of sole proprietorship are easy establishment and dissolution, complete control over the business, no need to share profit, and personalized service
• In partnership, partners share both profits and losses equally unless otherwise agreed upon.
• The disadvantages of sole proprietorship include unlimited liability, difficulty in raising funds due to lack of creditworthiness, limited financial resources, and death or disability of the owner may cause the business to cease operating.
• The advantages of partnership include ease of formation, sharing of risks and responsibilities, pooled resources, and flexibility in management
• Disadvantages of Partnership include unlimited liability, disagreements among partners, difficulty in attracting new investors, and loss of privacy.
• Advantages of Partnership include sharing risks and responsibilities, pooling talents and skills, easier access to capital, and greater flexibility in decision making.
• The advantages of sole proprietorship are easy establishment and dissolution, no need for formalities, complete control over business decisions, personalized service, and easier financing because owner can use his/her own assets as collateral.
• The advantages of corporation include perpetual existence, transferability of ownership interest, easier access to capital, and tax benefits
• The disadvantages of corporations include double taxation, complex legal requirements, higher costs of operation, and loss of control by owners