6.1 Forms of Business Organisation

Business has three forms of organization: Sole Proprietorship, Partnerships, Corporations.

6.1.1 Sole Proprietorships 

These sole proprietorship firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. is a business owned and run by one individual, perhaps employing one or two assistants and controlling their work.

Advantages of being a sole proprietorship

(a) Limited paperwork and therefore cost in establishing this type of structure

(b) Owner has complete control over the business

(c) Owner is entitled to profits and the ownership of assets

(d) Less stringent reporting obligations compared with other business structures – no requirement to make financial accounts publicly available, no audit requirement

(e) Can be highly flexible

6.1.2 Partnership

1. Definition

A partnership is an unincorporated business that is jointly owned by two or more people.

2.Types of Partnerships

There are mainly three types of partnerships: general partnership, limited partnership, joint venture.

A general partnership is a partnership with only general partners.

Limited partnership, “Limited” means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decision, which generally encourages investors for short term projects, or for investing in capital assets. 

A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance.

3.The Advantages of Partnership

v relatively easy to establish

v the ability to raise funds may be increased

v the profits charge to the partners’ personal tax return

v prospective employees may be attracted to the business if given the incentive to become a partner
4. Disadvantages of Partnership

v Partners are jointly and individually liable for the actions of the other partners

v Profits must be shared with others

v The disagreements can occur since decisions are shared

6.1.3  Corporation 

1. Definition

 A corporate is a business unit that is legally separate from its owners(shareholder). A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders.     

2. The Advantages and Disadvantages of Corporation

The Advantages of Partnership

• The owners (shareholders) have limited liability for the corporation’s debts or judgments against the corporation.

• shareholders can only be held accountable for their investment in stock of the company.  

•  raise additional funds through the sale of stock.

Disadvantages of Partnership

• Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.

• Incorporating may result in higher overall taxes. 

• Dividends paid to shareholders are not deductible from business income; thus this income can be taxed twice.