Types of Business Organization

Business enterprises are ranging their forms into three parts. Basically in the whole world, there are three common forms of business organization, these are proprietorship, partnership, corporation, or Limited Liability Corporation. A business will have one of three forms of organization: proprietorship, partnership, or corporation. ‘ These three forms are described below with their advantages and disadvantages.

Proprietorship: proprietorship means that form of business that is owned by one individual or one owner. The owner will also be the manager of his or her company. In the United States, more than 70% of businesses are structured as proprietorships. The popularity of this form is due to the easy formation and the low cost and resources of forming the business making the proprietorship business popular all over the world. But this business form also has some disadvantages. The prime disadvantage of proprietorship is the limited capital which means that the financial resources that are available in the business are limited due to the individual owner™s resources. Some common examples of proprietorship businesses include hardware stores, repair shops, laundries, and restaurants. There is no legal difference between the business entity and the owner, but the accounting records of the business activities are kept separate from the personal activities of the owner. If any proprietorship business wants to flourish the business with available financial and managerial resources then the forms may need to turn into partnership forms.

Partnership: A partnership is owned by two or more individuals or owners. Each partner of the partnership will be considered the owner of the business. Some common proprietorship businesses such as automotive repair shops, music stores, beauty salons, and clothing stores also could be formed as partnership businesses if there are more than none owners. It is not popular like proprietorship business but now about 10% of the businesses in the United States are structured as partnerships. Most partnerships are small or medium regarding the size of the business. But some partnership businesses also could be very large in size. According to the accounting the partnership is generally treated as a separate organization, which is distinct from the personal affairs of each partner.

Corporation: A business is termed as a corporation if the government approves its articles of incorporation. Any corporation is formed under state or federal statutes as a separate legal business entity. ‘ A corporation is a legal entity that operates its business activities in its own name. The ownership of a corporation is generally divided into shares of stock. If a corporation issues the stock to individuals or other businesses then the individual or the business becomes owners or stockholders of the corporation. The corporation is not defined by its owners as it happens in the business proprietorship and the partnership. The Corporation is a separate entity from the owner. The corporation is also differing from proprietorships and partnerships in another way. For example, if a proprietorship or a partnership cannot pay its debts, lenders can take the owners™ personal assets or their cash in order to satisfy the business obligations. But if a corporation goes bankrupt, then lenders do not have the power to take the personal assets of the stockholders. Because the holders of the shares basically own the facility of limited liability; that is, the shareholder is not personally liable for the debts of the corporate entity. Moreover, the stockholders or the shareholders may transfer all or part of their ownership shares to other investors at any time. The corporation form has another big advantage which is the capability to gain large amounts of resources by issuing stock. For this advantage, most companies that owned large investments in equipment and facilities are structured as corporations. Some famous examples of corporations in the whole world include General Motors, Ford, International Business Machines (IBM), Coca-Cola, General Electric, and so on. About 20% of the businesses in the United States are organized as corporations. Corporations have a major influence on the economy of any country. Limited liability corporations have the both characteristics of a partnership and a corporation so it formed as a corporation, but it can elect to be taxed as a partnership.

The business process of manufacturing, merchandising, and service could fall under proprietorship, partnerships, corporations, or limited liability corporations. As the manufacturing business requires a large amount of resources so most manufacturing businesses are organized as corporations. For example, most large retailers such as Walmart, Sears, and JCPenney are corporations.

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