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The Sole proprietorship - Admission/Application Essay Example

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There are three types of business structures: sole proprietorships, partnerships, and corporations. A sole proprietorship is a business owned by a single person. The owner often acts as the manager of the company which creates an intrinsic agency problem. An agency problem is a conflict of interest between the management and ownership group…
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The Sole proprietorship

Download file to see previous pages... Private businesses owned by one person have few formal compliance requirements and minimal tax obligation in comparison to other business structures. The legal costs to start a sole proprietorship are low and the starts up costs are low as well. They vary depending on the industry and the scope of the project. Sole proprietorship can prevent the hassle and corruption associated with bureaucracy. The tax filing is much simpler and does not require the assistance of a C.P.A. on many occasions. The Securities and Exchange Commission (SEC) does not regulate sole proprietorships, thus regulations such as the Sarbanes Oxley Act of 2002 do not apply to private businesses. There are also cons associated with sole proprietorship. One of those cons is unlimited personal liabilities. The owner is legally responsible for both his personal debt and the business debt. If a private business goes bankrupt the debtors could go after the personal assets of the owner to recover their money. Another disadvantage about sole proprietorship is the inability to raise large sums of money. Some examples of small business owned by one person include hair saloons, barber shops, book stores, clothing stores, and convenient stores among others. There is no legal distinction between the business as an economic entity and the owner, but the accounting records of the business activities are kept separate from the personal records and activities of the company (Weygandt, Kimmel, Kieso). The second type of business organizational structure is partnership. A partnership is a businesses owned by two or more people. The partnership agreement can be made orally or in written. It is preferable to have proper written documentation of a partnership agreement including how the profits are going to be distributed and the decisional power. The partnership agreement sets forth such terms as initial investment, duties of each partner, and division of net income or losses (Weygandt, et al.). Each partner has unlimited liability for the debts of the business. One of the greatest benefits of the formation of a partnership is the special labor skills and capabilities that each partner brings to the table. SEC regulations do not apply to partnerships companies. The third form of business structure is corporations. Corporations can either be private or publics. A public corporation is one that is registered with the Securities and Exchange Commission and whose common stocks are traded in the open market in major exchanges such as the New York Stock Exchange, American Stock Exchange, or NASDAQ. Corporations are separate legal entities that exist under state corporation laws. The owners of public companies are the common stockholders that have voting rights and are eligible to received dividends periodically. Corporations have more leverage to negotiate economic incentive packages with governmental officials. One of the greatest benefits of the corporate structure for the owners is have cero personal liability in case of liquidation or bankruptcy. Corporations have a higher incidence of lawsuits due to unscrupulous customers that want to get rich exploiting the corporate world. Another con of corporations is that often they get so large that bureaucracy takes over the firm. The taxes of corporation can be higher than the other two structures ...Download file to see next pagesRead More
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