Forms Of Business Organisation
FORM OF BUSINESS ORGANISATION
The business organization can be formed in various methods taking consideration of relevant advantages. The business can be established in the form of Sole proprietorship, Partnership (General/Limited) Corporation (S-corporation, limited Liability company) etc. Each form of organization has different advantages and disadvantages. Hence the owner of the establishment should consider all merits and demerits.
The establishment of partnerships and companies require lengthy process and much capital besides various legal compliances. Hence the small business firms advised to set up only sole propertorships. The sole proprietorship has several advantages like formation with singe owner, taxation on single point, less regulations and no profit sharing ratio.
CORPORATE FORM OF BUSINESS ORGANSIATION
The setting up of business organization in the form corporation attracts several advantages. The advantages include the characteristics of Limited liability, endless life, separation from ownership and management, transfer of ownership, capital raise etc. Hence most of the entrepreneurs in United States opt to set up the business in the form of corporation. The most attractive advantage is limited liability to the shareholders. It means in case of inability to pay debts, the shareholder is not at all responsible i.e. owner of the organization no way concerned about liabilities. However the corporation has disadvantages too like separation of ownership and management besides attraction of double taxation.
Since establishment of corporations involves much expenditure and lengthy process, normally the small business people elect to establish the organization by way of proprietorship concern. Small businessman always seek easy establishment with less regulations. Hence Sole Proprietorship is preferred instead of establishment of Corporations. In sole proprietorship, the owner keeps all profits and no sharing of such profits. With regard to taxation, the taxation will be made only one time on personal income of the proprietor. But in the case of corporation, double taxation is attracted i.e. on income and on dividend.
Lastly the shareholders of the corporation separated from ownership and management. But in the proprietorship, the ownership always with the owner. Hence small business persons always select to form the organization under the sole proprietorship.