“None of the four forms of business organization has all the features of an ideal form of business organization”. Critically evaluate the statement.
Answers
A business can be organized in one of several ways, and the form its owners choose will affect the company's and owners' legal liability and income tax treatment.
Here are the most common options and their major defining characteristics.
Sole Proprietorship:
The default option is to be a sole proprietor. With this option there are fewer forms to file than with other business organizations.
The business is structured in such a manner that legal documents are not required to determine how profit-sharing from business operations will be allocated.
LLC (limited liability company) :
This business structure protects the owner's personal assets from financial liability and provides some protection against personal liability.
Corporation:
Like the LLC, the corporate structure distinguishes the business entity from its owner and can reduce liability.
However, it is considered more complicated to run a corporation because of tax, accounting, record keeping and paperwork requirements.
Unless you want to have shareholders or your potential clients will only do business with a corporation, it may not be logical to establish your business as a corporation from the start - an LLC may be a better choice.
General Partnerships, Limited Partnerships (LP) and Limited Liability Partnerships (LLP) :
In a general partnership, all partners are personally liable for business debts, any partner can be held totally responsible for the business and any partner can make decisions that affect the whole business
In a limited partnership, one partner is responsible for decision-making and can be held personally liable for business debts. The other partner merely invests in the business.
So this way you got to know about the four forms of business organisation.
As you read you got a clear idea that the four forms are different from eachother and doesn't have an ideal form of business organisation.
There are several ways to organise a business.
There are four forms of business organization which has the features of the ideal form of any business organisation.
Sole proprietorship is the default option of a business.
By limited Liability company (LLC) a business structure can protect the interest and personal properties of the owner.
The corporate structure separates the business from the owner and reduces the liability.
On the other hand, general partnership can be liable for the business debts.