Business Organization
Business Organization
The businesses are organized in diverse ways whereby, the form chosen influences the owners’ liability and the company treatment of the tax. The most common types of the business in the global are the proprietorship, partnerships, corporations, and limited liability companies. These forms of the business have different structures, the number of members and amount of capital.
According to U. S Small Business Administration (n.d), the partnership is the best form of the firm. It is the form of the business where two partners agree to participate in business. Each party is expected to contribute money, skills, labor and is supposed to share losses and profits of the business. The significance of the partnership compared to other forms of the business is that, is easy to form as compared to the Limited Liability Company and corporations. Also, the losses that occur in the business are not subjected to one person alone as in the case of the sole proprietorship. The losses are shared amongst the present parties who signed and agreed to start up the business (U.S Small Business Administration, n.d.). Notably, the capital needed to start the business is big compared to the sole proprietorship case; the members join and contribute significant capital.
Sole Proprietorship a form of the business where there is only one owner or maybe the family members have the daily responsibility of running the business. The sole proprietor owns the assets moreover, the capital of the business including the profits generated in the business.
The formation of the sole proprietorships is very simple; one only requires small capital, the certificate of the operation from the local government and finally the skill to operate the business. The personal liability and the taxation are subject to the owner of the business (Specialized Entities, n.d.).
The advantage that surrounds this form of the business is that it is the easiest and cheapest form of the firm to organize. The sole proprietors completely control the business, and they make the law that suits them. Notably, the profits attained from the business are not taxed, and the business can easily be dissolved depending on the owners decisions. The disadvantages facing the business are that the proprietors face unlimited liability and are responsible for the debts facing the debts hence the business is at risk. The business faces difficulty in attracting the high skilled employees or the investors. Additionally, it is hard to raise the funds since mostly; it depends on the personal capital or loans.
Partnerships
This refers to the business that is owned by more than one person and like proprietorships; the law does not distinguish between the owners and the business. The company is established through the signing of the agreement between the parties that sets out how the profits will be shared and how the future partners will be admitted. Also, it sets how the partners will be removed, how disputes will be resolved, and the steps required to dissolve the business.
It is formed when two or more people come together with resources like capital, idea, labor, and skills to start a business. They sign the agreement contract and comply with the laws of the local government (U.S Small Business Administration, n.d.). The partners face the liability directly, and the taxation applies to the business partners in the business.
The advantages following the partnerships are that it is easy to establish and it is easy to raise more funds due to several members. The employees are attracted to the business since it easily grows and can get incentives. The company also benefits from the diverse skills of the diverse partners. The disadvantages facing the partnerships are that the one partner will be liable to the actions of the other partners and the profits generated by the company are shared amongst the partners. There are also many disagreements in the organizations because the decisions are not made by one individual but shared. Also, the partnerships sometimes have limited life, especially during the death or withdrawal of one partner.
Limited Liability Company
LLC is a form of the business that provides the limited liability to the members, tax efficiencies, and operational flexibility. The formation is more complicated because it requires more members, and the papers for the formation should be filed. Voting of the members is done when the time expires. It is formed when more than four members join and form; they have to sign the paper works from the state and local government that also entails signing the contract of the agreement (Films for the Humanities & Sciences (Firm), Films Media Group, & Video Education Australasia, 2010). The members are not subject to the liabilities of the company. Instead, the company represents them. There is double taxation since the members and the employees are taxed, and the company itself is taxed.
The advantages are that the members have limited liability for the company's debts, and they can generate more capital through the sale of the stock. The disadvantages are that it needs more money and time during its formations, and there is high taxation compared to other forms of the business.
Corporations
More than four members form Corporation. The agreement must be signed, and the laws of the local and federal state should be followed. The company is a charted company within a specific state. It is a unique entity since the business is separate from the owners. It is subject to the tax and it can enter into the contract agreement. The board of the directors is elected by the shareholders and heads who oversees the important decisions and the policies. The life of the corporation does not dissolve even if the shareholder dies or the ownership changes. The owners have limited liability and the employees in the company are taxed. In addition, the company itself is subject to taxation.
The advantages of the corporations are that the shareholders have the limited liability and hence they are not liable for the debts of the company. The shareholders are only held accountable for the investments in the company. Therefore, the officers and the staff are held responsible for the failures like withholding taxes (Specialized Entities, n.d.). The additional funds can be achieved through the sale of the stock, and it can deduct the cost of the benefits it gives to the employees and the officers. The disadvantage of the corporation is that during the incorporation process, it needs more money and time compared to other forms of organizations. The local agencies and the federal state monitor the corporations and hence, it requires more paperwork for regulations compliance. Finally, they have high overall taxes since at some points; it is taxed twice.
References
Films for the Humanities & Sciences (Firm), Films Media Group, & Video Education Australasia. (2010). Legal Structures: Types of Business Entities. New York, NY: Films Media Group.
Specialized Entities. (n.d.). Research Handbook on Partnerships, LLCs and Alternative Forms of Business Organizations, 225-226. doi:10.4337/9781783474400.00024
U.S Small Business Administration. (n.d.). Choose Your Business Structure | The U.S. Small Business Administration | SBA.gov. Retrieved from https://www.sba.gov/starting-business/choose-your-business-structure
