The three forms of legal business organizations are: Sole Proprietorships, Partnerships, and Corporations. There are advantages and disadvantages of each of these types of organizations.
Sole proprietorships make up the majority of business organizations. This type of business is owned by one person who has complete control over the business. The sole proprietor may have a few employees that work for them. Some examples of sole proprietorships are plumbers, carpenters, small beauty shops. Some advantages of having a sole proprietorship is that the owner makes all of the decisions for the business and receives all of the profit made in the business. Other advantages are that they are easy to start up and just as easy to dissolve the business. However, there are also some disadvantages to having this type of business organization. One is that investors may not want to invest in the business because it can be a risky investment. A major disadvantage is that the owner has unlimited liability which means that they are personally responsible for the debts of the business (Gitman, 2009).
Partnerships are when two or more individuals own a business together for profit. Some examples of partnerships are small law firms, small accounting firms, or restaurants. Partnerships usually are bound by a contract known as the “Articles of Partnership.” This is a written agreement that states that all of the partners combine their money and skills for profit. All the partners sign with the understanding that they share profits and losses. There are several advantages to having a partnership. One is that there are low startup costs to start a partnership. Some more advantages are that all of the partners may have different skills or strengths that they can bring into the business and all the partners share in the responsibilities of the business. There are several disadvantages to a partnership as well. The partners may disagree on how the business should be run. It is also difficult for partnerships to find investors for their company. One more disadvantage is that it can be difficult to liquidate or transfer partnership (Gitman, 2009).
A corporation is a legal entity owned by stockholders. Corporations have the powers of an individual which means that it can sue and be sued. One example of a corporation is the company I work for, Teledyne Technologies. Other examples include Starbucks, and Wal-Mart. Corporations have several advantages such as limited liability. This means that the debts of the corporation are not the personal responsibility of the shareholders because the corporation is a separate entity. Corporations are attractive to investors because they can buy or sell stock in the corporation. The corporation remains in existence until the shareholders decide to dissolve or merge the company. One major advantage to the corporation is that they can offer their employees benefits such as health insurance, a 401K, and retirement plans. There are some disadvantages to corporations as well. A company has to pay hefty fees to incorporate such as the fee to the Secretary of State to file the articles of incorporation. Another disadvantage is that they must adhere to government rules such as the Sarbanes-Oxley Act of 2002 to make sure that companies do not disclose fraudulent information. The reason that this is a disadvantage is because in order to be SOX compliant, corporations undergo observation from auditors One last disadvantage is that taxes for corporations are higher because they are taxed on the income that the corporation makes and the dividends paid out to stockholders are also taxed (Gitman, 2009)..
Financial managers have many responsibilities within a corporation, but the overall goal of the financial manager within a corporation is to make good solid investment decisions for the company so that the company makes money. The objective of a corporation is to maximize the shareholders wealth (Gitman, 2009). I agree with this goal because if the business is doing well then the employees are doing their jobs well within the organization and the employees have more job security.
References:
Gitman, L. J. (2009). Principles of managerial finance. 12th Edition.
Pearson Prentice Hall. San Diego State University.
