?List and describe the three most common forms of business organization. What are the advantages and disadvantages of each?

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Answer 1

?The three most common forms of business organization are the sole proprietorship, the partnership, and the corporation. Each form of business organization has the following advantages and disadvantages:Sole proprietorship-This is the simplest form of business,in which one person-the sole proprietor-owns the business.•The advantages of a sole proprietorship are that the sole proprietor is entitled to all profits made by the firm, is free to make any decisions regarding the business (such as what kind of business to pursue), and is allowed to establish tax-exempt retirement accounts. Sole proprietorships are easier and less costly to start than most other kinds of businesses because few legal forms are involved and no filing with the state is required.•The disadvantages of the sole proprietorship include that the sole proprietor alone bears the burden of any losses or liabilities incurred by the business. This means unlimited personal liability. Also, the sole proprietor is taxed at the personal rate. This may be either an advantage or a disadvantage depending on what the current tax rates are and the sole proprietorship's amount of income. Also, when the sole proprietor dies, so does the business-it is automatically dissolved.?Partnership-A partnership involves two or more people doing business jointly as partners for profit.•The advantages of a partnership as a business entity include the sharing of the profits of the partnership among the partners. Also, because a partnership must include at least two people, there are at least two people to contribute funds to start up the business. A partnership does not pay taxes; however, the individual partners do. Also, the partnership involves a fiduciary relationship.•The main disadvantage of the partnership entity is the joint and several liability of the partners for one another. This liability is unlimited personal liability. Partners also declare their share of the partnership's profits as personal income on their individual tax returns.Depending on the tax rate and the amount of income, this can be either an advantage or a disadvantage.?Corporation-A corporation is a separate legal entity from the individuals who own it, and it is created and recognized by state law. In the eyes of the law, a corporation is a legal"person" that enjoys many of the rights and privileges of a U.S. citizen.•The advantages of the corporate entity include limited liability-that is, limited to the amount of stock purchased in the corporation. Also, a corporation may raise money by selling stock. A corporation has the right of access to the courts as an entity and can sue or be sued. Also, it has the right to due process of law and the right to freedom from unreasonable searches and seizures.•A possible disadvantage of the corporate entity is that more formality is required, such as the need to incorporate by filing articles of incorporation and being granted a corporate charter from the state. Another disadvantage is the double taxation of corporate profits.