Describe the characteristics of the four basic forms of business ownership.
A sole proprietorship is a business that is owned, and usually managed, by a single person. A partnership is a voluntary arrangement under which two or more people act as co-owners of a business for profit. A corporation is a legal entity created by filing a document with a state agency also known as the articles of incorporation. A corporation is considered to be a separate and distinct from its owners, who have a limited liability for the debts of their company. A limited liability company is a relatively new form of business ownership that, like a corporation, offers limited liability to its owners. However, LLCs offer more flexibility in tax treatment and simpler operating requirements.
Discuss the advantages and disadvantages of a sole proprietorship
A sole proprietorship is the simplest and least expensive form of ownership to establish. It offers the single owner the flexibility of running the business without having to seek the approval of other owners. If the business is successful, the sole proprietor retains all the profit. The earnings of a sole proprietorship are taxed only as income of the owner with no separate tax levied on the business itself. A key disadvantage of a sole proprietorship is that the single owner has unlimited liability for the debts of the business. The sole owner also must often work long hours and assume heavy responsibilities. Sole proprietorships as normally have difficulty raising funds for expansion. Finally, because the law views sole proprietorships as simply an extension of the person who owns the company, this form of ownership has a limited life.
Evaluate the pros and cons of the partnership as a form of ownership
The most basic type of partnership is a general partnership, in a general partnership, each co-owner takes an active role in