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The advantages and disadvantages of the four different forms of business organization, which include the following:
Sole proprietorship
Advantages
The business is very easy to form considering that no legal requirements are required, except a business license. This type of business also requires little capital for starters. The business is also easy to control. In addition, the owner of business enjoys all business profits as well as loses. This type of business also offers the owner with flexibility of attending to other issues and does not require government control (Madura, 2007).
Disadvantages
Sole-proprietorship is sometimes faced with the challenges of limited resources, since it consumes the owner’s savings. Sometimes this kind of business is limited with managerial expertise (Madura, 2007)..
Partnership
Advantages
Partnership kind of business is easy to form, as it requires few partners who can agree orally to start up the business. This kind of business enjoys a large pool of capital and resources from each partner’s contributions (Madura, 2007).
The business is also advantaged by diverse expertise and skills from each partner. The business offers each partner with an advantage of sharing risks. Each business partner is rewarded from effort exhibited in the running of the business.
Disadvantages
Partnership kind of business is limited with capital, since there is a limit to business membership. This business has also unlimited liabilities subjected to the partners and this limits their participation in the business. There is also high probability of business collapsing, if one partner dies or is incapacitated (Madura, 2007).
Joint venture
Advantages
A joint venture form of business enjoys a vast pool of resources, diverse managerial expertise and technological benefits from each participating company. This form of business also enjoys a large source of capital and also enjoys good distributorship of products from existing distribution channels (Madura, 2007).
Disadvantages
A joint venture is short-term and is difficult to establish, considering a good relationship must be established between the business partners. Incompatibility between two business cultures is likely to affect business relationship. Joint ventures are always marred with confusion and disagreement among managers. This form of business has a lot of formalities.
Corporations
Advantages
Corporations enjoy tax benefits, since they get taxed based on profits made. This is considered as a benefit, since corporations can optimize on expenses reduction. In this context, expenses such as insurance covers and heath care are minimized. Corporations benefit individuals, employees and other official business stakeholders, since they are registered as legal entities (Madura, 2007).
In this case, they are exempted from legal action against their assets.
Disadvantages
Corporations are usually under strict legal observations. This kind of businesses requires periodical reports on financial status. In most, cases, the credibility of forming corporations is always an ethical issue to be investigated.
According to Gitman & McDaniel (2008), the following financial statements are associated with the following forms of businesses
Sole-proprietorship: Sole-proprietorship does not necessarily require any financial statement. However, it is important to keep profit and loss statement to know how much the business is making and losing. Another important financial document to keep in this type of business is a balance sheet to assess the financial position of the business. Cash flow statements are also recommended to indicate source of cash and how it was utilized within a business period.
Partnership: A partnership business requires a general partnership entity indicating partners’ liabilities in the business. An income statement is also used to show the business income, total business expenditures and the business periods net profit or loss. Statements of owners equity are also highly recommended. Meanwhile, the balance sheet is used to evaluate and make calculations on assets and liabilities. This document also calculates the owners’ equity within a business period. Other important documents for a partnership business include a general journal and a trial balance for general transactions listing and accounts listings respectively.
Joint ventures: Just like partnerships and corporations, joint venture requires financial statements on consolidated financial statements. Most of these financial statements are statement of income, cash flows, equity, income and expenses, taxes, earning per share, inventories and equity.
Corporations: Balance sheet and income statement are major documents in this form of business. Others include the owners’ equity and the cash flow statement. Most of these financial statements are also evidenced in all other kinds of businesses indicated above.
According to Gitman & McDaniel (2008), the following implications are associated with the indicated forms of businesses
Tax implications
Sole-proprietorship: Before taxation in this kind of business, expenses are deducted from the stated income. In most cases, this kind of business requires that taxes be part of expenditures on social security and health insurance. Taxation in this business is filed quarterly and annually, if there are other employees.
Partnerships: Taxation is based o tax returns from each business partner. This means there is no direct taxation of the business. Each partner is responsible for individual taxes. However, disagreements within partnership can lead to taxation liability of other partners.
Joint ventures: Taxation of joint venture depends on the business structure. In most cases, taxations are done on partnership levels, and so taxation can be done individually or as double taxation.
Corporations: Corporations are double taxed. The corporation pays tax as an entity and shareholders are also liable to taxation based on income- tax returns from dividends.
Legal implications
Sole-proprietorship: The owner of the business is viewed as the business and vice -versa. This makes the owner of the business liable to all legal implication that affects the business.
Partnership: All partners are legally liable to any violations of law by the business.
Joint ventures: Just like in partnerships, partners in joint ventures are liable to any legal implication that concerns the business or that concerns the other partner. The only liability existing is that concerning the venture, but not on legal issues such as debts and damages.
Corporations: In this business, employees and owners are sometimes exempted from legal implications facing the corporation in crisis. This means that the company is closed down and its executive directors held liable to mismanagement.
Accounting implications
Sole-proprietorship: This business uses ledgers and computer software for accounts. Accounts on income taxes are mandatory as well as those of self-employment. This must be filed with internal revenue service. Sole-proprietors don’t have limitations and protections for debts and accounting errors. Such can lead to law suits and assets confiscation.
Partnerships: Account is done like in sole-proprietorship, with each partner having a separate account. Accounting implications on one partner may lead to the same implication of the immediate partner.
Joint ventures: Just like in partnerships, the accounting implication affects the entire joint venture business. However, individual pursuit of illegalities in accounts may be done on individual partner basis.
Corporations: Accounting implication indicates that accounts are handled by an accountant and a secretary. This gives a distinction between recording and filing. Accountants records accounts, while the secretary files and executes the records.
An explanation of the unique product or service your small business provides
The ABZ fitness workout gym is a small business that is aimed at offering physical fitness services to the local neighborhood. The business has the modern exercise equipments.
Your choice of business organization form for your new business
The business is a family business and can be considered to be a sole-proprietorship kind of business.
Your rationale for choosing this form of business organization
The business is very easy to form considering that no legal requirements are required, except a business license. This type of business also requires little capital for starters. The business will enjoy monopoly in the market, since no similar business exists in the area.
References
Gitman, J. L., & McDaniel, D. C. (2008). The future of business: The essentials. Boston, MA: Cengage Learning.
Madura, J. (2007). Introduction to business. Boston, MA: Cengage Learning.
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