The structure of corporation allows it to be owned by large numbers of individual (shareholders). This is significant, because it means that a corporation can use the public markets to be able to raise investment capital. As a result, some corporations have the potential to raise billions of dollars through the public markets using such financing methods. ("Definition of a Corporation")
Drawbacks
There are number of different drawbacks of corporations the most notable would include: there are more costs for establishing such entities, there are formalities and there is unemployment insurance. In general, the costs for establishing a corporation can range from a few hundred dollars to thousands of dollars in legal fees. As there will be time spent filing all of the appropriate paperwork with the courts and the state. This is significant because some business owners may not have the time or money to establish such an entity. ("Definition of a Corporation")
A second drawback of corporations is there are no formalities. This is important because once a corporation has been established, you must ensure that a number of different activities are undertaken to include: filing corporate minutes, having the board of directors / shareholders meetings and ensuring that the company is in compliance with all laws. These are important because without anyone of the above mentioned activities not covered, means that the business could lose its recognition as a separate legal entity. Where, the shareholders would be responsible for all liabilities that the company has. ("Definition of a Corporation")
A third drawback of corporation is that unemployment taxes must be paid on any salaries that are received. In many cases, the shareholder of a corporation will be a manager or work at the company. The reason why this is important is because on any kind of salary that is received, means that unemployment taxes must be paid. This can cause the overall amounts of profits to decline, by having to pay taxes that would not apply to the other types of business...
("Definition of a Corporation")
Clearly, all three business organizations have a number of different benefits and drawbacks. For the sole proprietorship, the most notable benefits would include: they are easy to establish, the tax structure is fairly straightforward and it is easy to manage. While the different drawbacks would include: financing can be difficult to obtain, the owner is responsible for all liabilities and the entity ceases upon the death or retirement of the owner. The benefits for a partnership would include: there are few legal requirements, partners can be able to combine their resource / skills (for the benefit of the organization), the partnership does not have to pay taxes, and there is flexibility in determining profits / losses. The drawbacks would include: assets of the partners can be used to cover business liabilities and the partners share in the overall liabilities / debts of the business. For the corporation, the different advantages would include: shareholders are not liable for company debts, there are tax savings, it can outlive shareholders and it makes raising investment capital easier. While, the different drawbacks of such an entity would include: there are more costs for establishing such entities, there are formalities and there is unemployment insurance. What this shows is that each entity has number of different strengths and weaknesses. Depending upon the objectives of the organization, the financial situation of the owners and their overall levels of comfort will determine which kind of entity is established. This is important because it underscores how a careful examination of each must be undertaken to determine which one would work best for the various businesses.
Bibliography
"Definition of a Corporation." Legal Zoom. 2010. Web. 26 Apr. 2010.
"General Partnership." Iowa Secretary of State. 2010. Web. 26 Apr. 2010.
"Incorporation." Legal Zoom. 2010. Web. 26 Apr. 2010.
"Sole Proprietorship." Iowa Secretary of State. 2010. Web. 26 Apr. 2010
