Comparison of Three Primary Types of Business Organizations

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This article lists advantages and disadvantages of mainly three type of business organizations and compare them effectively.
 

Sole Proprietorship: A firm owned by a single individual.

Advantages

1. Firm is easy to set up.

2. Decision making is simple,owner has total control.

3. Income is taxed only once-as personal income. 

Disadvatages

1. Owner has unlimited personal liability for obligations of the firm.

2. Difficulty of raising financial capital for the firm. 

Partnership:  A firm owned and operated by more than one person. 

1. Limited liability of owners  for the obligation of the firm.

2. Access to large blocks of financial capital by selling stocks and bonds.

3. Firm can hire professional management and replace personnel when necessary.

4. Firms has potentially and legal eternal life-owners  may come and go or die  

Advantages 

1. Firm is easy to set up.

2. Access to more financial capital then proprietorship.

3. Some specialization is possible; more management skills available.

4. Income is taxed only once. 

Disadvantages

1. Disagreement among partners creates decision making problems.

2. Unlimited liability for partners.

3. Legal complications when a partner dies or leaves. 

Corporation: A firm owned by those who buy shares/stock and whose liability is limited to the amount of their investment.

Advantages 

1. Limited liability of owners  for the obligation of the firm.

2. Access to large blocks of financial capital by selling stocks and bonds.

3. Firm can hire professional management and replace personnel when necessary.

4. Firms has potentially and legal eternal life-owners  may come and go or die 

Disadvantages

1. Double taxation of income once on the profits of the corporation and then on profit received as income.

2. Possibility of conflicting goals of management and owners.

3. Owners have very little say in management decisions.

4. Costly and complicated to  establish and run to meet legal obligations. 

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