BUSINESS ORGANIZATIONS (12)
.docFORMS OF BUSINESS ORGANIZATIONS
A business may be privately organised in three different forms, These forms are the sole proprietorship, the partnership and the corporation. Most business firms are created and exist to make a profit.
A sole proprietorship is a form of business organization owned and operated by one person. Sole proprietorships are the most numerous kind of business organisation, hut most are very small The reason for their popularity is that they are the easiest and least costly to organize. Sole proprietors own all the profits of their enterprises, and they are then own bosses". They don't have to pay the special taxes placed on corporations. Among sole proprietors are farmers, professional men, small storekeepers and small manufacturers.
The greatest disadvantage of a sole proprietorship is unlimited liability that each proprietor faces. Liabiiity refers to legal obligations to pay for debts or damages. Unlimited liability means, if a business fails, the owner of the business must assume the debts and in some cases declare personal bancruptey. The second disadvantage is that a sole proprietorship has limited capital. The money that a propritor can raise is limited by the amount of his or her savings and ability to borrow. Other disadvantages may include lack of opportunities for employees, limitations of size and growth and lack of management resources.
A partnership is a form of business organization that is owned and run by two or more persons. Partnersnips are easy to form, relatively small to control and often gel tax benefits from the government. Partnerships are not subject to special taxation. Partnerships can be found in such professional fields as medicine law, accounting, insurance and stockbrokerage.
in many cases partnerships have unlimited liability. Each partner is both jointly or separately responsibie for all the debts of their business. If a business fails, its creditors have the tight to recover their money from any, or the. of the partners. Partners may disagree, causing management conflicts.
A cooperation is a form of business organization created under a government charter. A corporation charter is a kind of license issued by the state in which a corporation is created.
A corporation may issue and self stock certificates. A person who owns a stock certificate is called a stockholder. Shareholders are the owners of a corporation and their shares of ownership are represented by stock sertificates. Owners hold shares and are responsible for the firm's debts only up to the limit of their investment. If a corporation goes out of business, the shareholders lose what they have invested, but no more than that. it means that a corporation has limited liability. When the corporate stockholders die, their shares of stock are passed on their heirs.
A corporation is managed by the Board of Directors.
A corporation acts like a legal person, It has the right of an individual, it also has the right to own properly, to buy and sell, the right to sued and be sued, and it must pay taxes. A corporation can offer higher salaries and thus attract talented managers and specialists. Profitabie corporations pay dividends to their shareholders.
It is difficult and expensive to organize a corporation. The process of obtaining a charter usually requires the services of a lawyer. Corporations are subject to special taxes.
The privately owned business corporation is one type of corporation. Educational, religious, charitable institutions can also incorporate. Usually such corporations are nonprofitable and don't issue stock.