Forms of Business Organization

Forms of Business Organization

A business organization can take various forms to conduct its day-to-day operations. The two major forms of business organizations include sole proprietorship and corporations. The former relates to a business formed by a single individual. At the same time, the latter refers to a business organization formed by a group of individuals known as shareholders and is registered as a separate legal entity. When compared in the light of liability, the sole proprietorship form of business has unlimited liability. The owner can lose even personal properties in the event of losses and maturing obligations. However, this disadvantage presents an advantage for corporations because corporations are subject to limited liability. Notably, this means that the business owners will not lose their personal properties to pay the corporation’s separate entity status liabilities. Considering the dimension of control, the owner of a sole proprietorship enjoys full control and takes all the profits made by the business (Smith & Williams, 2018). However, this can be disadvantageous in the event of losses.

On the other hand, owners of corporations do not take control of the business. As a result, they enjoy advantages and freedom from the business activities. However, this presents a disadvantage where managers who control the company make decisions that trigger conflicts of interest. There are few regulatory measures to meet when forming a sole proprietorship. In contrast, corporations are highly regulated, and their incorporation requires lengthy and extensive legal processes. When assessed under financial statements, sole proprietorships are not required to prepare financial statements legally, and therefore, they can prepare them in any manner they prefer. However, this is not the case for corporations because preparing and submitting financial statements is mandatory (Baksaas & Stenheim, 2019). Further, the presentation of the financial statements follows conventional guidelines set by regulatory bodies.

References

Baksaas, K. M., & Stenheim, T. (2019). Proposal for improved financial statements under

IFRS. Cogent Business & Management, 6(1), 1642982.

Smith, D. G., & Williams, C. A. (2018). Business Organizations: Cases, Problems, and Case

Studies. Aspen Publishers.

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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 state of the business.

Forms of Business Organization

Respond to the following in a minimum of 175 words:

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