Business Form

MAHMUDUL HASAN ADNAN
ID: 17364005
Strengths and Weakness of various forms of business organizations in

present context:
Sole proprietorship
A sole proprietorship is a business started and owned by an individual. Little or no legal
paperwork is required to begin, other than any necessary professional or local business
licenses. Operating as a sole proprietor is one of several common options to start your
business.
Strengths
 you’re the boss

 you keep all the profits
 start-up costs are low
 you have maximum privacy
 establishing and operating your business is simple
 it’s easy to change your legal structure later if circumstances change
 You can easily wind up your business.
Simplicity: A sole proprietorship is the simplest form of business establishment. It is the only
prominent way to start a business without going through any significant legal hoops.
Minimal Investment: While the nature of your business may dictate a need for more funds,
some people start a sole proprietorship for no more than a few hundred dollars.
Weakness
 your capacity to raise capital is limited

 all the responsibility for making day-to-day business decisions is yours
 it can be hard to take holidays
 The life of the business is limited.
Liability: The most significant weakness of a sole proprietorship is that it leaves the owner
personally responsible for all facets of business. Unlimited liability for debts as there’s no legal
distinction between private and business assets
Taxes: While there are many tax benefits to sole proprietorships, a main drawback is that the
owner must pay self-employment taxes.
Partnership
Partnership is commonly formed where two or more people wish to come to together to form a
business. Perhaps they have a common business idea that they wish to put to the test or have
realized that their skills and talents compliment each others in such a way that they might make
a good business team.
Strengths
 Fairly easy and inexpensive to form a partnership

 Start-up costs are shared equally with you and your partner(s)
 Equal share in the management, profits and assets
 Tax advantage — if income from the partnership is low or loses money (you and your
partner(s) include your shares of the partnership in your individual tax returns)
 Capital: The partners will fund the business with startup capital. This means that the
more partners there are, the more money they can put into the business, which will allow
better flexibility and more potential for growth. It also means more potential profit, which
will be equally shared between the partners.
 Flexibility: A partnership is generally easier to form, manage and run. They are less
strictly regulated than companies, in terms of the laws governing the formation and
because the partners have the only say in the way the business is run (without
interference by shareholders) they are far more flexible in terms of management, as long
as all the partners can agree.
 Shared Responsibility: Partners can share the responsibility of the running of the
business. This will allow them to make the most of their abilities. Rather than splitting
the management and taking an equal share of each business task, they might well split the
work according to their skills.
 Decision Making: Partners share the decision making and can help each other out when
they need to. More partners mean more brains that can be picked for business ideas and
for the solving of problems that the business encounters.
Weakness
 There is no legal difference between you and your business

 Unlimited liability (if you have business debts, personal assets can be used to pay off the
debt)
 Can be difficult to find a suitable partner
 Possible development of conflict between you and your partner(s)
 You are held financially responsible for business decisions made by your partner(s); for
example, contracts that are broken
 Disagreements: One of the most obvious disadvantages of partnership is the danger of
disagreements between the partners. Obviously people are likely to have different ideas
on how the business should be run, who should be doing what and what the best interests
of the business are.
 Agreement: Because the partnership is jointly run, it is necessary that all the partners
agree with things that are being done. This means that in some circumstances there are
fewer freedoms with regards to the management of the business.
 Liability: Ordinary Partnerships are subject to unlimited liability, which means that each
of the partners shares the liability and financial risks of the business. This can be
countered by the formation of a limited liability partnership, which benefits from the
advantages of limited liability granted to limited companies, while still taking advantage
of the flexibility of the partnership model.
 Taxation: One of the major disadvantages of partnership, taxation laws mean that
partners must pay tax in the same way as sole traders, each submitting a Self Assessment
tax return each year. They are also required to register as self employed with HM
Revenue & Customs. The current laws mean that if the partnership brings in more than a
certain level, then they are subject to greater levels of personal taxation than they would
be in a limited company.
 Profit Sharing: Partners share the profits equally. This can lead to inconsistency where
one or more partners aren’t putting a fair share of effort into the running or management
of the business, but still reaping the rewards.
Corporation
Another type of business structure is a corporation. Incorporation can be done at the federal or
provincial/territorial level. When you incorporate your business, it is considered to be a legal
entity that is separate from its shareholders. As a shareholder of a corporation, you will not be
personally liable for the debts, obligations or acts of the corporation. It is always wise to seek
legal advice before incorporating.
Strengths
 Limited liability
 Ownership is transferable
 Continuous existence
 Separate legal entity
 Easier to raise capital than it might be with other business structures
 Possible tax advantage as taxes may be lower for an incorporated business
 Owners' personal assets are protected from business debt and liability
 Corporations have unlimited life extending beyond the illness or death of the owners
 Tax free benefits such as insurance, travel, and retirement plan deductions
 Transfer of ownership facilitated by sale of stock
 Change of ownership need not affect management
Weakness
 A corporation is closely regulated

 More expensive to set up a corporation than other business forms
 Extensive corporate records required, including documentation filed annually with the
government
 Possible conflict between shareholders and directors
 You may be required to prove residency or citizenship of directors
 More expensive to form than proprietorship or partnerships
 More legal formality
 More state and federal rules and regulations

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MAHMUDUL HASAN ADNAN

Strengths and Weakness of various forms of business organizations in

 you’re the boss

 your capacity to raise capital is limited

 Fairly easy and inexpensive to form a partnership

 There is no legal difference between you and your business

 A corporation is closely regulated

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