Forms of Business Organizations

Forms of Business Organizations

Sole Proprietorship

Sole proprietorship is a type of business organization that involves a single owner of a business. The operations of the business are carried out by the same person who is the owner of the business (Sitarz, 2005).

Advantages

It is a simple structure that is easy to be started and operated as compared to other forms of businesses. It is also a cheaper way to start business because it does not involve taxation standards including double or triple taxation system. The owner has a control over his or her business which helps in decision making process.

Disadvantages

If the owner of the business is incapacitated or deceased then the business may suffer the issue in continuity. The liquidation of the business is easy and it is distributed to the beneficiaries of the owner. The raising of capital is also difficult for a sole proprietor because they cannot go public and issue stocks and they are unable to invest in areas where corporations can easily invest.

Financial statements associated with sole proprietorship

The main financial statements prepared by sole proprietor include balance sheet, income statement and the statement of owner's equity. The income statement reports the revenue, expense, net profit or net loss for the period. The balance sheet reports the assets, liability and owner's equity for the time period. The statement of owner's equity provides a detailed account of the beginning capital, any increase or decrease in the capital account during the period, withdrawals and the ending capital.

Tax implication

A sole proprietor does not need to file a separate report of business tax. A list of business figures and information is listed in the individual tax returns of the sole proprietors. It is a way to cut down the cost of tax filing and accounting. The tax is applied on personal income of the sole proprietor and they are not eligible for corporate tax rate.

Legal implications

Sole proprietors are liable for their business and debts personally. If they are unable to pay the creditors and the debtors then the law authorizes to sue them and pay the debtors and creditors through the personal income and assets of the owner.

Accounting Implications

Sole proprietors use ledgers and books to record and update their accounting, third parties or computer software for tracking the purchases, revenues and sales.

Partnership

Partnership is a form of business in which two or more partners join together to form a business. There are several kinds of partnership in which partners share their profits, skills and liabilities (Attorney & Attorney, 2012).

Advantages

The more the partners in a business, it is easy to invest a large amount of capital as a startup capital of the business. The formation of partnership is comparatively easier than a corporation. There is a shared responsibility among the partners which helps in distributing the area of expertise and directs the business towards growth.

Disadvantages

The disagreements among the partners may spoil the business. The dissolution might become difficult due to the issues ...