Choosing the form of business to create is one of the most important decisions an enterprise makes. The extent of liability and control the owner will have depends on the form of the business.

• Differentiate among the major forms of business organization and describe what you consider to be the top 2 advantages and disadvantages of each form. Address the regulatory and financial statement differences of each form of business.

ANSWER

The major forms of business organization

The four main types of business organizations include sole proprietorship, partnership, corporation, and Limited Liability Company, or LLC. Two significant advantages of a sole proprietorship are that they are easy to form, and the owners enjoy the sole control of the business’s profits. However, key disadvantages include, the owner is personally liable for the losses and liabilities and that Owners are unable to raise capital by selling an interest in the business (Fjeldstad & Snow, 2018). An advantage of a partnership is that the owners can start the business relatively quickly and inexpensively. Another advantage is that the partners do not require to give annual meetings and only require a few formalities. The disadvantages of partnerships include increased disputes when conducting business and sharing of profits gained from the business.

For the LLC, a key advantage is a fact that they do not require to have annual meetings and also have a few ongoing formalities. LLC owners are also protected from personal liability for company debts and obligations.  On the contrary,   the most significant disadvantage is the burdensome range of formalities, which the corporate managers observe (Robison, 2020).  LLCs are also relatively more expensive to set up as compared to partnerships.  A vital advantage of a corporation is that owners are also protected from personal liability in debts and obligations.  A corporation is also able to get capital through the sale of its securities easily (Fjeldstad & Snow, 2018). A corporation’s disadvantage is that it requires annual meetings, where the owners and directors have to observe certain formalities. Corporations are also more expensive to set up as compared to sole proprietorships and partnerships.

For a Sole proprietorship, the financial activities of the business are maintained distinctly from the person’s personal financial activities.  On the other hand, partnerships are required to file a certificate of limited partnership with state authorities. While it seems similar to a limited partnership for the Limited Liability Company, there are significant legal and statutory differences, mostly in the registration.  It is required for a corporation that articles of incorporation be filed with the state before its establishment.

References

Fjeldstad, Ø. D., & Snow, C. C. (2018). Business models and organization design. Long Range Planning. 51(1), 32-39.

Robison, L. (2020). Alternative Forms of Business Organizations. Financial Management for Small Businesses.