Forms of Business Organization

Forms of Business Organization

Have you ever imagined who commences the required capital, takes the accountability of arranging assets and other resources, operates them into practice, and controls and coordinates the operation to earn desired profits? If you search around, you will find a manufacturing business owned and operated by a single individual, who executes all these operations. It is significant for business owner(s) and manager(s) to comprehend the legal environment, in which their business(s) operate, not merely with regard to their own businesses however also as regards to other companies with whom they are doing business. In this context, there are six forms of business organizations, which are discussed below:

Sole Proprietorship

Control

Sole proprietorship is also termed as a sole trader. It is a form of business, which is owned and controlled by single individual and is the simplest form of business organization. The single owner of business has entire ownership and control over the assets and capital invested in the business and he or she is individually responsible (subject to some restrictions) for the expenses and liabilities of the business.

Liability

A different advantage, nonetheless, is that the proprietor of this business form is responsible for all the business liabilities. Therefore, if a sole owner business undergo into financial crisis, creditors can originate lawsuits against the sole proprietor. If lawsuits are successful then proprietor has to pay the liability with his or her money. The owners of this business form can, and frequently do, combine business and personal funds and property, unlike partnerships, LLCs and corporations, they cannot do this.

Income taxes

Due to the fact that sole proprietorship is not distinguishable from its owner, its characteristics related to tax implications are somewhat simple. The owner reports the income earned in the business and / or losses and expenditures through filing a Schedule C, with the standard Form 1040. Schedule C is a tax form, in which profits and losses are initially recorded. This form is filed along with 1040. Afterwards, the “bottom-line amount” from Schedule is shifted to the personal tax return. This characteristic is advantageous, as the business losses suffered by the owner can counterbalance income earned from other resources. A sole proprietor can also report a schedule SE with Form 1040. Schedule SE used to calculate the amount of self-employee tax owed by the owner. He or she needs to pay unemployment tax on him or herself, even though the owner should pay unemployment tax on every employee of the business.

Longevity or Continuity of the Organization

The business in a form of sole proprietorship can sustain as long as the owner is willing to do so. Nevertheless, it will be terminated on the death of the owner, as it is not a segregate official body. Some weak points in the context of business continuity are the business generally depends completely on the enthusiasm and managerial capability of the business owner. As the managerial capability and other resources are limited, thus sole proprietorship form is not appropriate for large levels of ...