AL PAUL T.

ROJAS

BSBA IV

LAW2

Common form of a business and their advantage and disadvantages

Sole proprietorship- is an unincorporated business with one owner who pays personal
income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self-contractors or business owners. Advantage: youre the boss you keep all the profits start-up costs are low you have maximum privacy establishing and operating your business is simple its easy to change your legal structure later if circumstances change You can easily wind up your business.

Disadvantage: you have unlimited liability for debts as theres no legal distinction between private and business assets your capacity to raise capital is limited all the responsibility for making day-to-day business decisions is yours retaining high-calibre employees can be difficult it can be hard to take holidays youre taxed as a single person The life of the business is limited.

Partnership- a business organization in which two or more individuals manage and operate
the business. Both owners are equally and personally liable for the debts from the business. Advantage: two heads (or more) are better than one your business is easy to establish and start-up costs are low more capital is available for the business youll have greater borrowing capacity high-calibre employees can be made partners there is opportunity for income splitting, an advantage of particular importance due to resultant tax savings partners business affairs are private

there is limited external regulation Its easy to change your legal structure later if circumstances change.

Disadvantage: the liability of the partners for the debts of the business is unlimited each partner is jointly and severally liable for the partnerships debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts there is a risk of disagreements and friction among partners and management each partner is an agent of the partnership and is liable for actions by other partners if partners join or leave, you will probably have to value all the partnership assets and this can be costly.

Corporations- The most common form of business organization, and one which
is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. Advantage: Owners' personal assets are protected from business debt and liability Corporations have unlimited life extending beyond the illness or death of the owners Tax free benefits such as insurance, travel, and retirement plan deductions Transfer of ownership facilitated by sale of stock Change of ownership need not affect management Easier to raise capital through sale of stocks and bonds

Disadvantage: More expensive to form than proprietorship or partnerships More legal formality More state and federal rules and regulations

References: http://www.business.tas.gov.au http://www.morebusiness.com/ http://www.investopedia.com