Business Structures - Essay Example

Business Structures al Affiliation Business Structures The video begins by noting that in the current competitive businesses environment, entrepreneurs must be careful when choosing the type of business to operate. According to the video, the success of any business depends largely on the business structure. The video identifies three ways in which a business can be structured. These include sole proprietorship, partnerships and a company (Films for Humanities & Sciences, 2011). The three business structures have both advantages and disadvantages that an entrepreneur must consider before choosing the type of business structure to start.

Sole proprietorship is a business structure run by one person. As such, the major advantages of a sole proprietorship are that the owner has full control of the business and does not share the profits with anyone. This type of business structure is also advantageous since decision making is faster as the owner makes all the decisions affecting the business without having to get anyone’s approval. Additionally, sole proprietorship is the simplest business venture to start as there are not many legal requirements.

Nevertheless, sole proprietorships also have certain disadvantages, which a business entrepreneur must consider. Firstly, the sole proprietor bears all the liabilities of the business, which is disadvantageous. Additionally, raising capital for business expansion may be difficult. Partnership is a business structure formed by two or more individuals. A partnership may come in two forms: general and unlimited liability. Limited liability partnership is that which protects owners from liabilities arising out of the business failure.

In this regard, in case a business fails, limited liability partners are only liable to the creditors to the extent of the capital contributed. This implies that creditors cannot claim the private properties of the partners in case of business failure, which is advantageous. Secondly, partnerships are advantageous in that management is shared among all partners. Thirdly, partners are only taxed personal earnings. Additionally, partnerships are advantageous since it is easy to raise capital for business expansion as each member ploughs in capital in the business.

Partnerships are, however, disadvantageous since profits are shared among partners. Secondly, decision making might be time consuming due to differences in opinions among partners (Films for Humanities & Sciences, 2011). The video also discusses quite a number of corporate structures, including general corporations, subchapter S corporations and limited liability corporations. General corporations have an advantage in that there is separate legal entity. This implies that in case the business fails, the stockholders are only liable to the extent of their shares in the company.

The fact that general corporations have separate legal entity also protects the personal assets from business debts or liability. Secondly, corporations are also advantageous since capital is raised by stockholders. In fact, there is no limit to the number of stockholders a general corporation should have, which makes raising capital easy. However, corporations are disadvantageous in that they require the owners to appoint someone to help run them. Additionally, forming a corporation is cumbersome since many legal issues are involved before a corporation can be formed (Films for Humanities & Sciences, 2011).

Subchapter S corporation is another type of common corporate structure with a special IRS tax status. The corporate structure is mostly common with small businesses. The advantages of S corporations include tax savings, business expense tax credits, and the fact that the business has an independent life. This means that the death or resignation of a member does not affect the continuation of an S corporation. S corporations are, however, disadvantageous in that S corporation have stricter operational processes and shareholder compensation needs (Films for Humanities & Sciences, 2011).

Limited Liability Company (LLC) is the other corporate structure that an investor may form. The advantages of forming an LLC include greater flexibility, fewer restrictions, tax savings, independent life and business tax credit expense. However, LLC is disadvantageous in that it is difficult to manage and require hiring of professionals (Films for Humanities & Sciences, 2011). Bbased on the video, it is clear that the business and corporate structure is a very critical factor to consider before venturing into business.

This is because the business and corporate structure influence the success of a business and how it is managed. ReferenceFilms for Humanities & Sciences. (2011). Planning your business: research, goals, and business plans. Corporate Business Structures. (Video). http://digital.films.com/PortalViewVideo.aspx?xtid=42248&loid=116024