TEXT A: FORMS OF BUSINESS ORGANISATIONS
There are numerous reasons why people do business. Financial independence and
security, profit potential, desire for achievement and self-fulfilment, the opportunity
to work at something they really love are some of these reasons.
When organising a new business, one of the most important decisions to be made is
choosing its structure. The choice will be based on the entrepreneur’s vision
regarding the size and nature of the business, the level of control he or she wishes to
have and others.
In view of these requirements, different forms of business organisation — sole
proprietorships, partnerships and corporations — have their advantages and
disadvantages.
Sole proprietorships
The vast majority of small businesses start out as sole proprietorships. Such a firm is
owned by one person, usually the individual, who has day-to-day responsibility for
running the business. A sole proprietor enjoys a number of advantages.
First and foremost, it is the easiest and least expensive form of ownership to
organize. Sole proprietors are in complete control, within the law, over all decisions.
They receive all income generated by the business to keep or reinvest. The business
is easy to dissolve, if desired. This form of business organisation is the most flexible
and adaptable to changing times.
On the less bright side, however, is the fact that a sole proprietor has unlimited
liability. Besides, it is very difficult for a sole proprietor to raise investment funds
and to attract high-calibre employees.
Parthnership
In a partnership, two or more people share ownership of a single business.
An important argument in favour of this type of business organisation is that
partnerships are relatively easy to establish. Another advantage is that with more than
one owner, the ability to raise funds may be increased. Unlike in sole proprietorship,
prospective employees may be attracted to the business if given the incentive to
become a partner.
At the same time, partners are jointly and individually liable for the actions of the
other partners. Similar to a sole proprietorship, a partnership has a limited life: it may
end upon a partner’s withdrawal or death. Another serious drawback of partnerships
is the threat of potential disagreements among partners over decision-making, which
may cause management conflicts adversely affecting the business.
Corporations
A corporation is considered by law to be a unique “entity”, separate and apart from
those who own it. A corporation can be taxed; it can be sued; it can enter into
contractual agreements. The owners of a corporation are its shareholders. The
shareholders elect a board of directors to oversee the major policies and decisions.
If compared with sole proprietorships and partnerships, a corporation has distinct
advantages. One of the weightiest factors is that shareholders have limited liability
for the corporation’s debts or judgments against the corporations. Corporations have
wider opportunities to raise additional funds through the sale of securities. They can
transfer ownership through the transfer of securities.
At the same time corporations that are public, i.e. whose shares are sold to the public,
are to disclose information about their finances and activities, which may be used by
their competitors. Corporations are subject to double taxation.
The form of the business organisation an entrepreneur has chosen is not permanent.
If the circumstances of his business change, he can always change the form of his
business.
To sum up, all forms of business organizations have pros and cons, so every
entrepreneur chooses the one he likes more.
