Business A Changing World: 10th edition. Ch. 4 study questions
Define and examine the advantages and disadvantages of the sole proprietorship from the organization.
Sole proprietorships-businesses owned and managed by one person-are the most common form of organization. Their major advantages are the following: (1) They are easy and inexpensive to form, (2) they allow a high level of secrecy, (3) all profits belong to the owner, (4) the owner has complete control over the business, (5) government regulation is minimal, (6) taxes are paid only once, and (7) the businesses can be closed easily. The disadvantages include: (1) the owner may have to use personal assets to borrow money, (2) sources of external funds are difficult to find, (3) the owner must have many diverse skills, (4) its survival of the business is tied to the life of the owner and his or her ability to work, (5) qualified employees are hard to find, and (6) wealthy sole Proprietors pay a higher tax than they would under the corporate form of business.
Describe the corporate form of organization and site of the advantages and disadvantages of Corporations.
A corporation is a legal entity created by the state, whose assets and liabilities are separate from those of its owners. Corporations are charted by the state through Articles of Incorporation. They have a board of directors made up of corporate officers or people from outside the company. Corporations, whether private or public, are owned by stockholders. Common stockholders have the right to elect the board of directors. Preferred stockholders do not have a vote but get preferential divided treatment over common stockholders. Advantages of the corporate form of business include: (1) the owners have limited liability, (2) ownership stock can be easily transferred, (3) corporations usually lasts forever, (4) raising money is easier than for other forms of business and, (5) expansion into a new business is simpler because of the ability of the company to enter into contracts. Corporations also have disadvantages: (1) the company is taxed on its income and owners pay a second tax on any profits received as dividends, (2) forming a corporation can be expensive, (3) keeping Trade Secrets is difficult because so much information must be made available to the public and to government agencies, and (4) owners and managers are not always the same and can have different goals.
Identify two types of partnership and evaluate the advantages and disadvantages of the partnership form of organization.
A partnership is a business formed by several individuals; a partnership maybe general or limited. Partnership saw for the following advantages: (1) they are easy to organize, (2) they have higher credit ratings because the partners possibly have more combined wealth, (3) partners can specialize, (4) Partners can make decisions faster than larger businesses, and (5) government regulations are few. Partnerships also have several disadvantages: (1) General Partners have unlimited liability for debts of the partnership, (2) Partners are responsible for each other's decisions, (3) the death or termination of one partner requires a new partnership agreement to be drawn up, (4) it is difficult to sell a partnership interest at fair price, (5) the distribution of profits may not correctly reflect the amount of work done by each partner, and (6) partnerships cannot find external sources of funds as easily as can large corporations.