Nature and forms of business organizations

• Sole Proprietorship - it is a business owned by one person
• Advantages: - Sole proprietor

  a. You are the boss

  b. You keep all the profits

  c. Start-up costs are low

  d. You have maximum privacy

  e. Establishing and operating your business is simple

  f. It is easy to change your legal structure later if circumstances change

  g. You can easily wind up your business.
• Disadvantages: - Sole Proprietor

  A. You have unlimited liability for debts as there's no legal distinction between private and business assets

  b. Your capacity to raise capital is limited

  c. All the responsibility for making day-to-day business decisions is yours

  d. Retaining high-caliber employees can be difficult

  e. It can be hard to take holidays f. You're taxed as a single person

  g. The life of the business is limited.
• Partnership - is similar to a proprietorship except that there are two or more owners or partners. The two forms of partnership are the general partnership and limited partnership
• General Partnership - all partners share equally in the right, and responsibility, to manage the business, and each partner is responsible for all the debts and obligations of the business. Also, all partners share in gains or losses of the business.
• Advantages: - GENERAL PARTNERSHIP

  1. Easy to establish

  2. Increased ability to raise fund when there is more than 1 owner

  3. Extensive pool of knowledge, skills and contacts

  4. Enhanced management with more than one owner
• Disadvantages: - GENERAL PARTNERSHIP

  1. No separate business entity from partners

  2. Partners' personal assets unprotected

  3. Partners liable for each others' actions

  4. Partnership terminated upon death or withdrawal of one of the partners
• Limited Partnership - a partnership consisting of a general partner, who manages the business and has unlimited personal liability for the debts and obligations of the limited partnership, and a limited partner, who has limited liability but cannot participate in management.
• Advantages: - LIMITED PARTNERSHIP

  1. They have to share in the profits and losses without having to participate in the business itself.
  2. Easier to attract investors because they have limited liability to the business debts.
  3. They are only going to be liable for the amount of capital it contributed to the business; a business creditor cannot come after the limited partner's personal assets.
  4. Partners are taxed on their own personal income tax returns.
• Disadvantages: - LIMITED PARTNERSHIP

  1. They does not have much say in business matters
  2. If they participates actively, he may have general partner personal liability.
  3. General partner is personally fully liable for the debts of the business.
• Corporation

  • a separate legal and tax entity created by individuals (shareholders) who offer money, property or both for the corporation's capital stock and whose investors purchase shares of stock as evidence of ownership.
  • remains separate from those who manage and control the operations of the business.
• Advantages: - CORPORATION

  a. Limited liability, because shareholders are only liable up to the amount of their investment

  b. Raised capital through sales of shares or bond issuance

  c. Ownership transfer is easier.

  c. Perpetual life, since ownership can be passed through many generations of investors.
• Disadvantages: - CORPORATION

  A. Double taxation. Corporation pays taxes and shareholders pay taxes too for dividends received.

  b. Major shareholders have dominant voice in the management.

  c. Management operate the business without any real oversight from the owners.
• COOPERATIVES

  • It is an organization established for the purpose of purchasing and marketing the products of its members, i.e., shareholders, and/or procuring supplies for resale to the members, whose profits are distributed to the members (in the form of patronage dividends)