BUSINESS ORGANIZATIONS

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One of the major economic institutions is the business organization, a profit-seeking enterprise that 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 proprietorship, the partnership and the corporation.

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 tape involved. Most proprietorships are able to open for business as soon as they set up operations. In the event that the owner wants to dissolve the business, a sole proprietorship is as easily dissolved as it is formed.

Sole proprietors own all the profits of their enterprises and are free to make whatever changes they please. They have minimal legal restrictions and do not have to pay the special taxes placed on corporations. They also have the opportunity to achieve success and recognition through their individual efforts. Sole proprietorships are generally found in small-scale retail and service businesses such as beauty salons, repair shops, or service stations.

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

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. Another serious problem faced by the sole proprietorship is the lack of continuity of the business. When the owner dies, the business also legally terminates.

BUSINESS ORGANIZATIONS

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A partnership is a business that is jointly owned by two or more people who have combined their talents and resources for the purpose of earning a profit. Partnerships are most common in such professional fields as medicine, law, accounting, stockbrokerage, but they are also found in manufacturing, wholesaling and retailing.

The most common form of partnership is a general partnership. General partners own the business, work in it and share the profits and losses. They are responsible for the management of the business and usually agree with each other before making any major decisions.

There may be a special type of partnership, called limited partnership. 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 benefits from 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.

Date: 2015-12-11; view: 1717