Forms of Business Organizations - Essay Example

Forms of business organizations Business ownership can take different forms as provided for by commercial law. Example of forms of business ownerships are sole proprietorships, corporations, and limited liability companies. These organizations exhibit a number of differences and each of them has its own structure, tax liability status, advantages, and disadvantages.Differences between a sole proprietorship, a corporation, and a limited liability companyCharacteristics A sole proprietorship is a form of business organization that is owned by a single natural person.

There is no separate legal entity between the business and its owner and the sole proprietor has unlimited liability. The proprietor is also the sole source of the business’ equity capital and the owner enjoys all the profits and suffers all the losses of the business.These characteristics of the sole proprietorship distinguish it from a corporation and a limited liability company. A sole proprietor for example owns and manages a sole proprietorship, a feature that is different from observations in corporations and limited liability companies.

More than one person for example owns a corporation or a limited liability company. These owners are called shareholders while the owner of a sole proprietorship is called the sole proprietor. Board of directors who are distinct from the businesses’ owners manages corporations while limited liability companies’ managements are flexible. Another difference between the three forms of businesses is the owners’ liability over the organizations’ debts. While a sole proprietor is liable for all of the business’ liabilities, corporations and limited liability companies’ owners have limited liabilities that are restricted to their share contributions.

Another difference between the forms of business organizations is the legal requirements to which they are subjected. While a sole proprietorship only requires filing of the enterprise’s name, corporation, and limited liability companies must be registered. Tax considerations The organizations’ tax liabilities are also treated differently. While a sole proprietorship is taxed as a natural person through the proprietor’s income, a limited liability company is taxed at the business organization’s level while a corporation’s taxation involves a double taxation in which the organization’s earnings are taxed and shareholders are taxed on their dividends.

Structures The organizations also differ in their structural requirements. Sole proprietorships and limited liability companies are for instance not subjected to formal structural requirements while corporation must adhere to requirements such as keeping minutes and must comply with standardized accounting policies. Sole proprietorships and limited liability companies also lack formal managerial structures while corporations must have board of directors for management. Advantages and disadvantages of the forms of business organizationsSole proprietorship has advantages such as simple formation with few legal requirements and faster decision-makings.

The owner also enjoys all the profits. It disadvantages however include unlimited liabilities, limited capital base, and the fact that the owner bears all the business’ losses.Limited liability companies have the advantages of limited liability, professionalism in management and wider capital base. Its disadvantages however include sharing of profits, and lack of individual control over the business. Like the limited liability companies, a corporation has the advantages of limited liabilities, wide capital base, and professionalism in management.

Its disadvantages however include double taxation, and transfer of owners’ managerial authority to managers.ConclusionThe three forms of business organizations therefore have different features, structures, tax liability considerations, and advantages and disadvantages. This offers diversified options for business ventures.