Forms of business organization: advantages and disadvantages

¶ … Business Ownership

For an entrepreneur, deciding on what form of ownership a business undertaking should take may end up being a rather tough decision to make. This is essentially because each form of business has its own advantages and downsides. In this text, I will discuss four main forms of business including limited liability companies, corporations, partnerships and partnerships.

Sole Proprietorship

In Madura's (2006) own words, this is "a business owned by a single owner." In this case, the single owner of such an entity is entitled to all the profits the entity generates. However, such an individual is also responsible for all the obligations the entity might accrue. One of the main advantages of a sole proprietorship is that in this case, the single owner does not share the profits generated by the business with any other individual (Madura, 2006). Further, this form of business is easy to start as there are few legal bottlenecks associated with its formation. However, in this case, the owner of the business assumes an unlimited liability and hence should the business be unable to settle its obligations, the personal property of the owner can be attached to settle the same. Further, attracting capital in this case is a challenge.

Partnerships

On the other hand, a partnership as a form of business is established when two or more people come together and initiate an activity of an economic nature in which case all the profits and losses generated in such an undertaking are shared equally. A partnership may be preferred over any other business formation because just like a sole proprietorship, it is easy to form and manage. Further, based on the fact that its ownership comprises of two or more individuals, it is considered easier to raise capital in the case of a partnership (Madura, 2006). However, on the other hand, this form of business is prone to slow decision-making as all partners have to agree on a certain decision before the implementation or adoption of the same Kicks off. Further, unlike sole proprietorships, partners still have to share the profits generated equally.

Corporations

According to Miller & Hollowell (2010), a corporation can be defined as "an artificial being, existing only in law and neither tangible nor visible." By regarding it an artificial being, the authors mean that a corporation as a business entity possesses the same rights as an actual being when it comes to the conduction of commercial activities. One main advantage of a corporation is that shareholders in this case possess limited liability in that they cannot have their personal property attached to pay for unsettled business obligations. Further, the life of a corporation is considered indefinite, that is, unlimited. However, corporations are relatively difficult to start based on the legal paperwork and expenses involved. Also, unlike other forms of business, corporations tend to be regulated more closely.

Limited Liability Companies (LLC)

Miller & Hollowell (2010) describe this form of business ownership as a "hybrid form of business that offers the limited liability of a corporation but the tax advantages of a partnership." The authors note that one of the advantages of this form of business is the limited liability of members. This mans that just like a corporation; stockholders cannot have their personal properties beyond their shareholding attached to pay for the entity's debts. Further, the number of stockholders in this case is not limited. Thus an entity's ability to attract capital in this case remains largely unlimited. However, unlike a corporation, the life of a limited liability company is limited. Dissolution of a LLC is commonplace on either the bankruptcy or death of a member.