A form of business organization is the general structure in which a business is constituted. There are three forms of business organizations namely: sole proprietorship, partnership, and corporations. A sole proprietorship is a business form that is run and owned by one individual (Angualia, 2010). The advantages of a sole trader are that he takes all the profits, it is easy to start, family members assist in the running of the business, and decision making is easy because it depends on one individual.
However, this form of business organization has the disadvantage of unlimited liability which means that the owner takes all the risks and losses. A sole proprietorship will end when the owner dies. Also, the capital raised to start a sole proprietorship is limited to the owner’s capital. The other disadvantage of a sole proprietorship is that it is not easily transferable from one person to another.
A partnership is a form of the business organization formed by more than two people called partners or shareholders. The partners write the rules of the partnership called the partnership agreement. The partnership is easy to start, large amounts of capital are raised, partners share unlimited liability and the business will go on in case one partner dies. The disadvantage is that decision making becomes a problem because all partners must be consulted before a decision is made. Also, ownership is not easily transferable (Reinier, 2004).
Corporations are the largest forms of business organizations formed by more than 20 people. The first stage involves forming the articles of incorporation and setting out the by-laws to govern the corporation (Angualia, 2010). This form of business organization has the advantage of large amounts of capital are raised, the death of one person does not affect the continuity of the corporation, ownership is easily transferable and capital is obtained through the sale of shares. The disadvantage is that it has many legal requirements, decision making is difficult, and the problem of double taxation.
The main goal of financial managers within a corporation is to develop policies that will best implement the objectives of the corporation and increase the value of its shares in the stock exchange market (Angualia, 2010). I agree with this goal because the corporation’s policies keep on changing from time to time according to the government’s security laws and the global accounting principles and procedures. This requires managers to adjust to any changes when they arise (Angualia, 2010).
Anne Kurtz, you are right about the forms of business organizations you have listed. What you need to know about the partnership is that it is formed by a maximum of 20 people. On the corporations, the bylaws are drafted by the owners of the corporation and are only provided for registration. Financial ability can not be an advantage of the sole proprietorship because he is limited to the amount of capital he has.
Rhonda Payne, it is true that the three forms of business organizations are sole proprietorship, partnership, and corporations. You mentioned the silent partner among the types of partners; does he take part in the management of the organization? Also, you did not tell much about the partnership deed document which shows how partners share profits. Corporations are taxed twice as a corporation and also each shareholder is taxed separately and this its disadvantage (Dignam et al. 2006).
Angualia, D. (2010). “ Goals of a Multinational Corporation and the Role of a Financial Manager.” 49 (2): 134-154.
Dignam, A. & Lowry, J. (2006) “ Company Law” New York: Oxford University Press.
Reinier, H. (2004). “Anatomy of Corporate Law: A Comparative and Functional Approach.” New York: Oxford University Press.