Speak about advantages and disadvantages of partnership as a form of business organization

As business became more competitive, new and more complex corporate combinations appear. Single own­erships and the partnerships have finance weaknesses and that is the reason why the corporation (company) came into existence.

The major simple forms of integration are the fol­lowing:

1. A vertical integration characterizes companies that engage in the different steps in manufacturing or marketing a product.

2. A horizontal combination brings under one control companies engaged in the sale of the same or similar products.

3. A complementary combination takes place when companies, selling allied but not competitive products, combine.

4. A conglomerate combination involves firms in widely diverse industries, such is a motor company owning a food manufacture or book publisher.

5. Of great economic importance are multinational corporations. Such companies maintain extensive business activities and large-scale production facilities throughout the world, and their revenues sometimes exceed the total revenues of some countries in which they operate.

The most common type of companies in Great Britain and other countries are registered companies, i.e. those registered in accordance with the Law of Companies. A registered company is rated as a legal person. A company, unlike proprietorships and partnerships, is usually formed for the purpose of conducting business that is separate from its owners (the shareholders) and those people who manage it. Thus companies can be distinguished as Public Limited Companies (Plc) or Private Limited Companies (Ltd). So the main difference is between pub­lic and private companies. Limited companies are also referred to as corporations in the USA, or joint-stock companies.

In limited companies, ownership is represented by shares of stock. Shares mean fractions of the company’s assets such as cash, equipment, real estate, manufactured goods, etc. A company has the same right as an individual to hold assets and property, conduct business, make contacts; it can sue, and it can be sued. A company is a single entity in the eyes of the law.

Money to operate the business is obtained by the sale of stocks and this enables the company to exist independently of its owners. The profits are distributed to the members as dividends on their shareholding. Losses are borne by the company. If the company goes out of business, the responsibility of each shareholder is limited to the amount that they have contributed; they have limited liability. Sometimes, but rarely, the shareholders’ liabilities are limited by guarantee, that is by the sum of money agreed upon by the partners. The personal assets of the owner are protected from the creditors of the company.

The stockholders do not directly manage the company. The day-to-day management of the company is carried out by a board of directors. The owners at an annual meeting elect a board of directors which has the responsibility of appointing the company president and vice-president, directors and secretaries, and setting the enterprise’s objectives.

Limited companies are at least risky from an owner’s point of view. Shareholders can only lose the amount of money they have invested in company stock. Companies can raise larger amounts of capital than proprietorships or partnerships through the addition of new investors and through better borrowing power. They find it easy to borrow money from banks. Companies are also a successful means for attracting large amounts of capital and investing it in plants, modern equipment and expensive research. Salaries large companies can offer to managers and specialists are high and that allows companies to hire professional and talented employees.

Unlike sole proprietorships and partnerships, a company continues to exist despite chang­es in (or deaths among) its owners.

The great drawback of the corporate form of ownership is double taxation of profits which means that business companies must pay taxes on their net income, and then the shareholders are to pay taxes on the income they receive as dividends on their stock. Different kinds of reports are to be filed to federal and state regulatory agencies about the company activity.

It is also more expensive and more complicated to establish companies. A charter, which requires the services of lawyers, must be obtained through the provincial or federal government. In addition to legal costs, the firm is charged incorporation fees for its charter by the authorizing government.

With diverse ownerships, companies do not enjoy the secrecy of proprietorships and partnerships. A company must send each shareholder an annual report detailing the financial condition of the firm. However, in terms of size and influence it is the company (corporation) that has become the dominant business form existing in most countries with free market economy.

Date: 2015-12-11; view: 1505