Various Forms of Businesses - Report Example

Report on Various Forms of Businesses Executive Summary A business organization is a group of people or an individual that jointly work together towards attaining a given setoff commercial goals. This paper will be looking at the numerous forms of business systems in a capitalist economy. The main purpose of this report will be in defining and evaluating the advantages and disadvantages of the different types of businesses. Furthermore, this report will also look at the factors underlying the choice of the business. The recommendations of this report will be of great benefit to the potential businesspersons. Some of the primary forms of business comprise of the sole proprietorship, partnership, and the corporation. Other types of business include the franchise, trust, and the joint venture. After elaborate assessment of the various types of the activities, the most appropriate one should be that which has fewer risks, speedy formation, and can access credit facilities. Therefore, this makes partnership the most reliable form of business. Table of Contents Executive Summary 2 Introduction 4 Discussion 5 Sole proprietorship 5 Partnership 6 Corporation 8 Other Forms of Businesses 9 Joint Venture 9 Trustees and Trust 10 Franchise 11 Conclusion 11 Recommendation 12 References 14 Campbell D, International Joint Ventures (1st, Kluwer Law International 2009). 14 Banaszczyk N, Advantages and Disadvantages of Joint Venture (Business Broker Alberta 2010) accessed 9-01-2015. 14 Dlabay L, and Scott J, International Business (4th, Cengage Learning Jan 19, 2010). 14 Fajardo F, Management (1st, Rex Bookstore, Inc.). 14 Gartner W, and Bellamy M, Creating the Enterprise (1st, Cengage Learning Jan 10, 2008). 14 Gibson A, and Fraser D, Business Law 2014 (1st, Pearson Higher Education AU Oct 11, 2013). 14 Job A, Types of Businesses (Entrepreneur Feb 26, 2013) accessed 9-01-2015. 14 Miller R, and Jentz G, Business Law Today (9th, Cengage Learning Jan 1, 2010). 14 Sagar R, Together with Business Studies XI: Forms of Business Organization (1st, 2010). 14 Schneeman A, The Law of Corporations and Other Business Organizations (9th, Cengage Learning Mar 12, 2012). 14 15 16 Introduction A business organization is an individual or a group of people that jointly work together towards attaining a given setoff commercial goals. This paper will be looking at the numerous forms of business systems in a capitalist economy. For illustration, some of the key types of business setups consist of the sole proprietorship, corporation, and partnership. There also exist other kinds of business organizations. Just to mention a few, they include joint venture, cooperative, and syndicate. The main purpose of this report will be inclined in defining and assessing the benefits and harms of the various forms of businesses. Furthermore, this report will also look at the factors underlying the choice of the business. The result of this report will be of great benefit to the aspiring businesspersons with the intentions of starting up a business. The structure of this report will be in the following manner. First, it will begin by defining and evaluating the disadvantages and advantages of business organization types. Second, after the conclusion section, there will be recommendations on suitable business form for people with various objectives. Discussion Sole proprietorship Sole Proprietorship is a form of business whose ownership, control, and management are under a single person. Furthermore, owner is the beneficiary of all the benefits and bearer of all the risks. This form of business is the simplest and easy in setting up. In the present day markets, sole proprietorship is the business type used by many businesses. They have dominated the agriculture, retail, and service industries1. Just like any form of business, sole proprietorship also possesses advantages. First, it is easy to create and dissolve. Reason being, it needs little capital. In addition, it only requires a business license but no legal papers are required. This form of business is also easy to close as compared to a corporation. Second, the business owner is the only beneficiary. Consequently, this acts as a great incentive for any entrepreneur. Most of the entrepreneurs have a high preference for this venture because of this benefit. Third, the owner assumes the role of the boss2. For illustration, he makes his decision in formulating decisions and adopting them as per his/her wish. For example, he/she would quickly change the business prices, hours, products, or style of managing. Fourth, there is fewer government restrictions and the tax advantage. The business owner will only have an obligation of paying his income tax. The regulation of the government is nearly none but only exists when it comes to acquiring licenses. Sole proprietor form of business also possesses disadvantages. One of which is unlimited liability. In the event of any loss, the owner becomes responsible for all the financial responsibilities. At some point, it might translate to his/her loss of personal property. Next, there is the absence of stability. When the owner dies, it implies the death of the business unless the family members take the responsibility of the business. Then, there is limited access to credit facility. Banks and other financial institutions are always reluctant in providing massive loans to sole proprietors. Reason being, the number of their assets are small. Finally, there is the need for limited business skills and knowledge. The business owners are tasked with the responsibility of doing more than one task. Therefore, there is no specialization in a particular sector. Partnership Partnership is a form of business that entails association of more than two people who jointly own a business. Each associate is usually required to contribute property, money, or services. This form of business is usually prevalent in business fields of accounting, retailing, real estate and advertising. Within this kind of business, there exist limited partners and the general ones. The difference among the partners is that the liability of any general partner usually extends to his personal belongings. On the other hand, the level of liability of private partners depends on their contribution to the partnership. Usually, the minimum number of persons needed for forming a partnership is always two.3 The benefits of this kind of business are numerous. First, there is availability of more credit and capital. The process of partners pooling resources together enables the business to have more funds. Furthermore, they can easily get loans from financial institutions. Secondly, it is much easier to organize a partnership. Reason being, the legal requirements for registration and submission of by-laws are less tedious compared to the formation of a corporation. Third, there is an equal distribution of returns. In the case of profits, its distribution is across all members. Furthermore, when the business experiences losses, the effect is distributed consequently minimizing pain of loss. Fourth, partnership involves secrecy. A business of this form is restricted from publishing their annual accounts. Consequently, matters, to do with the partnership, are private and confidential.4 The disadvantages of this type of business comprise of unlimited liability. Each member of a partner is responsible for the entire debt of the business. About the general partners, this might resort to the loss of their personal belongings. Second, there is the lack of stability. The continued operation of the business might be affected by factors such as insolvency, death, or incapacity of a partner. Finally, there is the lack or minimal public confidence. The public has less faith and trust in partnerships. Reason being, they do never publish the reports of their returns. Therefore, this makes people have less confidence in them.5 Corporation A corporation is considered as being an artificial being formulated by operations stipulated in the law, possessing the succession right, attributes and the powers expressed sanctioned by law. There are two forms of corporation; they consist of the private and open company. Private Corporation is under the ownership of few individuals. On the other hand, open company is jointly owned by persons who purchase shares that are openly sold in the stock exchange. Corporations always raise funds for their businesses by the sale of shares to various individuals and organization. The owners of this form of business are shareholders. In this form of business stakeholders, possess two rights. First, is to vote for policies and second earn dividends.6 The advantage of corporation consists of equality in choosing statues. Notwithstanding the amount of shares owned by a member, he/she is not restricted in voting statutes. Secondly, there is no life expectancy for the business. Unlike partnership and sole proprietorship, this form of business continues to exist despite factors such as deaths. Reason being, the previously owned responsibility is given to another person. Third, there is the predetermined financial liability of proprietors. Risks experienced by the corporation extend to the other owners. It is to imply that in case debts owned by the business; all the shareholders share the responsibility of clearing that debt. Finally, a corporation has more access to funds. Due to the desire of many individuals interested in being co-owners, it provides a corporation with an easier way of collecting funds. Consequently, a business can use this form of funding for growth or start other businesses.7 Despite the existence of advantages in this kind of business, there are also disadvantages. First, the creation process is complicated. The organizers of this type of business are required to meet severe government requirements before they gain access to a charter. Second, double taxation. Partners and sole proprietors pay individual income tax from their business earnings. Nevertheless, a company pays income tax from their earnings. Thereafter, shareholders submit their personal income tax on their dividends from the corporation. Third, owners have limited effect in the control of the business. Unless one owns a large segment of the shares, you are unable to affect the activities of the corporation. For illustration, family-held companies might have minimal stock but most people own majority of the Corporation8. Other Forms of Businesses Joint Venture A joint venture refers to a given kind of partnership created for a particular undertaking. In other words, it is defined as a contractual business conducted among two or more parties. It is closely related to partnership in the sense that while partnership is concerned with an ongoing lengthy business relationship a joint venture is only dependant on a one-business transaction. This form of business, as a typical partnership is not a detached legal entity. Expenses, revenues and ownership of assets always flow from this kind of business to the members. Since the joint venture itself possesses no legal status. Therefore, in the event that the venture fails to meet its objectives the existence of the entity ends.9 The primary benefit of a joint venture is that it offers companies with a chance to gain new expertise and capacity. Second, it enables companies to join related businesses. Third, it facilitates access to better resources, including technology and skilled staff. Fourth, there is little risk. Finally, in the age of consolidation and divestiture, joint venture provides a creative way through which companies exit from non-core industries.10 The main disadvantage of the joint venture is that it does not offer substantial support and leadership in the initial stages. Second, achievement in the joint venture usually depends on detailed research and evaluation of the objectives. Finally, there always exist disparity in levels of assets, expertise, or investment brought into the business by various partners.11 Trustees and Trust A trust happens when an individual is offered the power and possession over particular property to use it for the benefit of some other person or object. The individual with this form of authority is a trustee. He/she always possesses control and legal ownership over the trust property. However, it is always under an evenhanded obligation to deal with belongings for the benefit of a different person. During trading of trust, the trustee of the business receives assets and goodwill of an enterprise either by a businessperson or by will.12 Some of the advantages of a trust consist of its ability to maintain privacy. Possession of limited liability in case trustee is a company and provides benefits to associate of a given family without necessarily losing control over the trust. Apart from being advantageous, trusts also possess disadvantages. First, establishing a trust is expensive. Second, there can be substantial costs involved in sustaining of the trust.13 Franchise Franchises refer to licensing plans whereby a group or an individual can purchase the right to produce and trade under a well-established brand name in a given setting.14 Franchise entails the use of a different company’s business name to develop your own business.15 Conclusion There are different forms of business. Each possesses advantages and disadvantages outweighing one another in various aspects. The three top kinds of businesses are the sole proprietorship, partnership, and the corporation. Sole Proprietorship is a form of business whose ownership, control, and management are for a single person. Partnership refers to an alliance of two or more people who jointly own a business. Each associate is usually required to contribute property, money, or services. While corporation is considered to be an artificial being formulated by operations stipulated in the law, possessing the succession right, attributes, and the powers expressed sanctioned by law. Another form of businesses consists of the joint venture, franchise, and the trust. Recommendation Due to the need for providing a guide to potential businesspersons on which form of business to take, the following are the recommendations. First, the most appropriate for of business that is both easy to start is the sole proprietorship. Reason being, it involves fewer complications in the creation. Furthermore, the owner gets the privilege to enjoy profits and implement his decisions. However, it faces challenges of insufficient funds due to the owner not having enough assets. Second, in the case of partnership, there is also less complication when it comes to the creating a business of this form. Furthermore, in occurrence of any loss in the business, it is spread equally among all the members. Therefore, the most appropriate venture for a potential businessperson to take is partnership. Reason being, there are fewer risks, the business has access to more resources from both partners and credit facilities, and the tax imposed on this form of business is minimal. References Campbell D, International Joint Ventures (1st, Kluwer Law International 2009). Banaszczyk N, Advantages and Disadvantages of Joint Venture (Business Broker Alberta 2010) accessed 9-01-2015. Dlabay L, and Scott J, International Business (4th, Cengage Learning Jan 19, 2010). Fajardo F, Management (1st, Rex Bookstore, Inc.). Gartner W, and Bellamy M, Creating the Enterprise (1st, Cengage Learning Jan 10, 2008). Gibson A, and Fraser D, Business Law 2014 (1st, Pearson Higher Education AU Oct 11, 2013). Job A, Types of Businesses (Entrepreneur Feb 26, 2013) accessed 9-01-2015. Miller R, and Jentz G, Business Law Today (9th, Cengage Learning Jan 1, 2010). Sagar R, Together with Business Studies XI: Forms of Business Organization (1st, 2010). Schneeman A, The Law of Corporations and Other Business Organizations (9th, Cengage Learning Mar 12, 2012). Read More