Explain the Advantages and Disadvantages of the Main Forms of Business Organizations
Explain the Advantages and Disadvantages of the Main Forms of Business OrganizationsThe four main forms of business organizations namely sole proprietorship, partnership, C corporation, and S corporation have various advantages and disadvantages in terms of tax implications, legal status, financial obligations, and even set up time and compliance issues.
A sole proprietorship is an individual based business. The advantages of sole proprietorship are various including the easiness to start and dissolve the company, the ability to have personal and complete control over the company, and the ability to retain all profits and include them in personal tax returns. Sole proprietorship has some disadvantages that include the owner’s unlimited liability over the company. The owner is legally responsible for all the debts of the company. Another disadvantage is that it is hard to raise funds because it depends on one person who might not have sufficient funds. It may also be difficult to attract high skills and professional employees because some would want to either have a high ranking position in the company or the chance to buy stock. Sole proprietors are also taxed more than corporation for example corporations pay 15% tax for income up to $ 50,000 while sole proprietors pay 15% (if filing married filing jointly) for income up to 35, 800 only. Financial statements for sole proprietorship are the income statement, the balance sheet, the statement of cash flows, and the statement of owner’s equity.
In a partnership there are two or more owners. Partnership is also easy to establish and has the advantage of being able to raise more funds because there are more than one person involved. Partners can combine their knowledge and skills to be more successful. Partners report their profits in their individual tax returns. The disadvantages of partnership include the possible dissolution of the partnership if a partner decides to withdraw or dies. Another disadvantage is that because all partners are jointly and individually liable for the success or...