BUSINESS ORGANIZATIONS

One of the major economic institutions is the business organization,a profit-seeking enterprise¹that serves as the main link between scarce resources and consumer satisfaction. These businesses compete with one another for the chance to satisfy people’s wants.

There are three major kinds of business organizations: the sole proprietorship², the partnership³and the corporation⁴.

The most common form of business organization is the sole PROPRIETORSHIP — a business owned and run by one person. The main advantage of a sole proprietorship is that it is the easiest form of business to start and run. There is almost nored tape⁵involved.

The major disadvantage of a sole proprietorship is the unlimited liability⁸that each proprietor faces. Since the business and the owner are legally the same, the sole proprietoris liable for⁹all financial losses or debts that the business may incur. If a business fails, the owner must personally assume the debts¹⁰. This could mean the loss of personal property such as automobiles, homes and savings¹¹.

A second disadvantage of the sole proprietorship is that it has limited financial resources. The money that a proprietor can raise is limited by the amount of savings and ability to borrow.

The most common form of partnership is a general PARTNERSHIP³.

There may be a special type of partnership, called limited partnership⁴. Limited partners are only liable for the amount they have invested in the business. They are usually not involved in the management of the firm.

Partnerships have more advantages than sole proprietorships. Like sole proprietorship they are easy to form and often get tax benefits⁵from the government.

Partnerships have certain disadvantages too. The major disadvantage is unlimited financial liability. It means that each partner is responsible for all debts and is legally responsible for the whole business. But one of the greatest problems in partnerships is that partners may disagree with each other causing management conflicts.

A business corporation is an institution established for the purpose of making profit. It is operated by individuals. People, who would like to form a corporation, must file for permission¹ in the state where the business will have its headquarters.

The charter specifies the number of shares of stock², or ownership parts of the firm. These shares are certificates of ownership³and are sold to investors called shareholders or stockholders⁴. The money is then used to set up corporation. If the corporation is profitable it will eventually issue dividend or a check, representing a portion of the corporate profits to shareholders.

The major advantage is the ability to acquire greater financial resources than other forms of ownership. The next advantage is that the corporation attracts a large amount of capital and can invest it in plants, equipment and research. Corporations face some major disadvantages. It is difficult and expensive to organize a corporation. The process of obtaining a charter usually requires the services of a lawyer. Most small firms prefer to avoid these expenses by forming proprietorships and partnerships. There is also an extra tax on corporate profits.

Date: 2015-12-17; view: 1192