PRINCIPLES, TOOLS, AND TECHNIQUES IN BUSINESS
ORGANIZATION
Give the advantages and disadvantages of the following business organizations:
I. Sole Proprietorship
Advantages:
Less paperwork
- The advantages of sole proprietorship are vast and varied, especially if your
company’s small. One of the first and most basic advantages, however, is that you
won’t have to fill out a ton of paperwork with this business entity type. But It is
important to note, however, that you may have to obtain a business license or permit,
depending on the requirements of your state or local government.
Fewer business fees
- Is When you're starting and first running a business, your budget can be tight.
Therefore, another one of the crucial advantages of sole proprietorship is the ability
to save on registration fees.
Simplified business ownership
- Sole proprietorships make it easy to start a business, for sure. But they also make it
easier to own your business.
Disadvantages :
Unlimited legal liability
- Because There is no legal separation between the owner and the business. Similar to
how all profits flow to the owner, all debts and obligations rest with the proprietor.
Limit to available capital
- Owners put their own resources to bear when going into business for themselves.
There are limits to their financial resources and the amount of credit they get when
they seek out lending relationships.
Backup and succession
- If the owner cannot or does not want to operate the business, it stops. An owner
may have a family member or trusted employee who can briefly work in place of the
owner in the case of illness or any temporary and unforeseen reason.
II. Partnership
Advantages :
Have an extra set of hands
- When you have a business partner, you have a person—or multiple people—who
can help you with all the business tasks. The partners can divide up tasks, meaning
tasks will get done faster and the partners might be able to tackle more than if they
worked alone.
Having benefit from additional knowledge
- Partners can bring skills and knowledge to your business that you don’t have. You
might have a lot of knowledge about the product or service your business provides,
but not know how to run a business. You can bring on a partner who is skilled at
running a business.
Have less financial burden
- Starting a business can be expensive. But You might have costly overhead expenses
for inventory, equipment, retail space, etc. A partner can ease your financial burden.
Instead of paying for everything yourself, your partner can split the cost.
Disadvantages :
Can’t make decisions on your own
- Because when you’re in a partnership. You must work with your partner to make
decisions, or at least run all decisions by your partner.
Having Disagreements
- When You and your partners will have disagreements. You might even get sick of
working with each other.
Aren’t separate from the business
- In a partnership is not a separate legal entity from you and the other partners. All
partners are legally and financially responsible for the business. If your business
faces legal problems, you won’t be considered separately from your business. And, if
your business isn’t able to pay back debts, debt collectors can come after your
personal money.
III. Corporation
Advantages :
Personal Liability Protection
- Personal asset liability protection to its owners than any other type of entity. For
example, if a corporation is sued, the shareholders are not personally responsible for
corporate debts or legal obligations — even if the corporation doesn’t have enough
money in assets for repayment. Personal liability protection is one of the main
reasons businesses choose to incorporate.
Access to Capital
- Since most corporations sell ownership through publicly traded stock, they can
easily raise funds by selling stock. This access to funding is a luxury that other entity
types don’t have. It is great not only for growing a business but also for saving a
corporation from going bankrupt in times of need.
Tax Benefits
- Although some corporations, like C corporations (C-corps), are subject to double
taxation, other corporation structures, such as S corporations (S-corps), may give you
tax benefits depending on how their income is distributed. For example, S-corps have
the luxury of splitting their income between the business and shareholders, which
allows it to be taxed at different rates.
Disadvantages :
Double Taxation
- Most corporations face double taxation (C-corps), which means that the business
income is taxed at the entity level as well as the shareholder level (based on their
percentage of profits earned). The only way around this is to operate as an S-corp. S-
corps eliminate this problem by only taxing each shareholder on their individual
income and not at the entity level. However, the IRS has been known to pay closer
attention to S-corps and even tax them as C-corps if their records fail to meet the
legal requirements.
Expensive Corporations
- Are expensive to form and operate. It might be easy for established corporations to
raise capital by selling shares, but forming and maintaining a corporation can be
costly. You will likely need a lot of startup capital to get a corporation running, in
addition to paying the filing charges, ongoing fees and larger taxes. When weighing
the pros and cons to determine whether a corporation is the right legal structure for
your business, consult an attorney and an accountant who is well-versed in the
implications of creating a corporation.
