Forms of business organization

There are numerous reasons that make people think about owning a business of their own. Personal independence, unlimited profit potential, the opportunity to work at something that they really love and at hours they choose are some of the reasons people have given for trying entrepreneurship. Many Colleges now offer programs that teach students how to start and operate a business. These programs help potential entrepreneurs decide whether their own ideas are good and how to follow through with them. About 50 percent of entrepreneurs start their businesses in industries in which they have some experience. Evidence shows that people who come from families whose members were in business themselves are more likely to start their own companies.

Small businesses face many problems. In January, 1985 the National Federation of Independent Business reported that the four top problems facing small business at that time were taxes, slow sales, the high cost of borrowing money and competition from other businesses. In a large business the tasks of organizing and operating are done by many hired managers.

A business may be privately owned in three different forms. These formsare a sole proprietorship, a partnership and a corporation.Proprietorships, partnerships, and corporations have certain advantages and disadvan tages.

Of the three basic forms, the proprietorship is the simplest and the most common form in many western countries. The legal procedures for starting a proprietorship are limited to registering the company's name. The source of capital for a proprietorship is usually the owner's own savings and loans from banks. Sole proprietors own all the profits of their enterprises, and they are their «own bosses», free to make whatever changes theyplease. They have minimal legal restrictions and do not how to pay the special taxes placed on corporations. Sole proprietors also have opportunity to achieve success and recognition, through their individual efforts.

There are also disadvantages. A very serious one is the unlimited liability that each proprietor faces. All debts and all problems associated with the business belong to the owner. A second disadvantage of the sole proprietorship is that it has limited capital. The money that a proprietor can raise is limited by the amount of his or her savings and ability to borrow. Also, when the owner dies, the business dies. Other disadvantages may include lack of opportunities for employees, limitations of size and lack of management resources.

To avoid the problem ofunlimited liability a special form of or­ganization known as the limited partnership is used. A partnership is a business organization that is owned by two or more persons to carry on a business for profit. A limited partnership has one or more general partners who put up some capital, run the business and bear the liabilities of the business. The limited partners are in much the same position as stockholders in a corporation. There may be a silent partner as well - a person who is known to the public as a member of the firm but with­out authority in management. Limited partnerships are a common form of ownership in real es­tate, oil prospecting, quarrying industries, etc.

Partnerships offer certain advantages over sole proprietorships:

- Partners bring additional funds to a proprietorship.

- Partners can bring fresh ideas and talents to business organizations.

- Like the sole proprietorship, partnerships are relatively easy to form and are not subject to special taxation.

Partnerships have the following disadvantages:

- In many cases, each of the partners is subject to unlimited liability. Partners are individually responsible for all the debts of the business. In other words, if the business were to fail, its creditors would have the right to recover their money from any, or all, of the partners.

More capital can be raised by bringing in partners or by incorpo­rating. A corporation is a business organization created under a government charter. Ownership of a corporation is represented by shares of stock. Their shares of ownership are represented by stock certificates. A person who owns a stock certificate is called a stockholder. One feature of the corporation is that the courts-treat it as a legal «person». It can, for example, sue or be sued and enter into contracts, and it must pay taxes.

There are several advantages of the corporate form of ownership. The first is the ability to attract financial resources. The next advan­tage is that the corporation attracts a large amount of capital and it can invest it in plants, equipment and research. And the third advantage is that a corporation can offer higher salaries and thus attract talented managers and specialists.

The privately owned business corporation is one type of corpora­tion. There are some other types too. Educational, religious, charitable institutions can also incorporate. In some western countries, cities, states federal government and special agen­cies can establish governmental corporations. There are some other types of business organizations. They are: the corporation for small business, not-for-profit corporation, government-owned corporations, cooperatives and franchises

 

B Comprehension