Business Organization Essay Sample

There are many types of business organizations in the business world. Choosing the form of business organization is a key factor to success of any business organization. There are essentially three basic ways to set up a privately owned enterprise: a sole proprietorship, a partnership, and a corporation. Each form of business organization has its advantages and disadvantages. Sole proprietorship: a business that is owned by one person. Advantages of a Sole ProprietorshipThere are many types of business organizations in the business world. Choosing the form of business organization is a key factor to success of any business organization.

There are essentially three basic ways to set up a privately owned enterprise: a sole proprietorship, a partnership, and a corporation. Each form of business organization has its advantages and disadvantages. Sole proprietorship: a business that is owned by one person. Advantages of a Sole Proprietorship > A sole proprietorship is the least costly and easiest form of business organization to launch and operate. > A sole proprietorship is a business in which the owner is fully and personally responsible for all the obligations of the enterprise.

> A sole proprietor is entitled to all the company’s profits and takes complete managerial control. > A sole proprietor is free to make any business decision – what kind of business activities to choose, who to hire or fire, when to take a vacation, when to liquidate his or her business and so on. > There is preferential tax treatment. It means that any profit earned from the business is considered a sole proprietor’s income. Disadvantages of a Sole Proprietorship > Unlimited liability being the major disadvantage of a sole proprietorship means that a sole proprietor assumes the burden of any losses or liabilities the enterprise faces.

> Limited resources refer to the owner’s personal financial resources and his or her ability to borrow. > A sole proprietorship ends with a sole proprietor’s death. Partnership: an unincorporated business organization owned by two or more persons. Advantages of a Partnership > A partnership is relatively easy and inexpensive to establish. > There are more possibilities in raising funds because the borrowing power of two or more partners is greater. > Each partner can benefit a partnership by his/her knowledge, skills or ideas and specializes in certain activities of the business.

> Like a sole proprietorship partnerships are subject to special taxtreatment. Disadvantages of a Partnership: > A partnership has unlimited liability and if it is unable to meet its financial obligations, partners have to use their personal assets to pay off all the business’s debts. > Profit sharing can excite controversy when one or more partners aren’t putting great efforts into the management of the business. > Disagreements between the partners may cause management conflicts. > The partnership is terminated because of the withdrawal or death of a partner.

Corporation: a business organization created under a government charter. Advantages of a Corporation: > Limited liability is one of the major advantages of a corporation. > Being a separate legal entity, the corporation actually owns and operates the business for the benefit of the shareholders, but under their total control. > Shares of ownership are transferable. > Corporation has unlimited life. > It is much easier for a corporation to increase capital to manage and expand its operations Disadvantages of a Corporation > A corporation is difficult and expensive to create and organize. > Corporation is subject to double taxation.