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Business Organization
A business organization is a legal entity founded for the purpose of carrying on a commercial venture that specifies how firms are structured, how goods or services are produced, and how consumer needs are met. The goal of a business organization is to either generate profit (for profit) or improve society (non-profit organization) (not for profit). There are three primary types of business structures: Corporation or Limited Liability Company (LLC) (owners’ liability is distributed to shareholders as dividends), Partnership (owned and run by two or more individuals – general or limited), Individual Proprietorship (owned and run by one person), Partnership (owned and run by two or more individuals – general or limited), Corporation or Limited Liability Company (LLC) (owned and run by two or more individuals – general or limited
Different Forms Of Business Organization
The various types of business structures are as follows-:
1.Sole proprietorships account for the great majority of small enterprises. These firms are frequently owned by a single person, usually the person who is in charge of the day-to-day operations. Independent contractors, freelancers, and home-based enterprises are examples of sole proprietors.
ADVANTAGES OF SOLE PROPRIETORSHIP
- The gains go to the owner.
b.Profits are taxed only once the owner has complete control of the company and has made all decisions (could also be a disadvantage)
c.The easiest and cheapest type of ownership to set up.
DISADVANTAGES OF SOLE PROPRIETORSHIP
a.If something goes wrong in the business, you have unlimited liability.
b.Your personal belongings are in jeopardy (including your home in Missouri)
c.Due to a lack of finances, you may need to take out consumer loans.
d.There is no legal distinction between them.
2. Partnerships-:Two or more people share ownership of a single business in a partnership. The legislation, like that of proprietorships, makes no distinction between the business and its owners. A legal agreement should be in place between the partners that spells out how decisions will be made, earnings will be divided, disagreements will be settled, future participants will be accepted to the partnership, partners can be bought out, and how the partnership will be dissolved if necessary.
ADVANTAGES OF PARTNERSHIP
a.Simple to set up (with the exception of developing a partnership agreement)
b.Liability protection is provided by having a separate legal standing.
c.Partners may have complimentary abilities, so profits are only taxed once.
DISADVANTAGES OF PARTNERSHIP
- Partners are jointly and individually responsible for each other’s behavior.
b.Profits must be distributed to partners.
c.Decision-making that is divided
d.If a detailed partnership agreement is not in place, the business may suffer.
- A corporation is legally defined as a separate entity from people who own it. A corporation is able to be taxed, sued, and engage into contracts. When the ownership of a company changes, the corporation continues to exist.
Corporations are divided into three types: C-corporations, S-corporations, and Limited Liability Companies.
C-corporation
A corporation that is taxed independently from its owners is known as a C-corporation. It limits the owners’ liability, encouraging them to take more risks and potentially invest.
ADVANTAGES OF A C-CORPORATION
a.Liability is limited.
b.Shareholders can sell their shares to transfer ownership.
c.It is easier to raise funds by selling stock.
d.Benefits were paid by the company.
e.Tax advantages
DISADVANTAGES OF A C-CORPORATION
a.Taxation twice (corporation and shareholder earnings taxed)
b.Forming can be pricey.
c.More administrative responsibilities – yearly meetings are required by law, as is notifying stockholders of the meeting, keeping minutes of meetings, and turning them in.
d.Corporate taxes are paid at a different period than taxes on other types of businesses.
S-Corporation
The proprietors of a S company, also known as a subchapter S corporation, have limited liability. Instead of paying income taxes, S-corporations treat their earnings and profits as dividends. The money earned by the stockholders must be reported on their individual tax filings.
ADVANTAGES OF AN S-CORPORATION
a.Liability is limited.
b.Double taxation is avoided.
c.Profits are taxed only once, making it easier to raise capital through stock sales.
d.Ownership transfer
DISADVANTAGES OF AN S-CORPORATION
a.Stockholders limited to persons, estates, or trustees might be costly to organize.
b.Administrative responsibilities are required.
c.It is not possible to provide company-paid fringe benefits.
d.Citizens and resident aliens of the United States are the only stockholders.
A limited liability company (LLC) is a hybrid business form that combines the legal liability protection of a corporation with the operational flexibility of a partnership or sole proprietorship. However, unlike a general partnership, the formation is more complicated and official.
Forming an LLC necessitates the filing of legal documentation by the business owner. You might want to seek legal advice to help you through the procedure. The following is a list of legal assistance service providers in Missouri.
ADVANTAGES OF A LIMITED LIABILITY COMPANY
a.The most prevalent business structure, which was established primarily for small firms.
b.Insurance is required in the event of a lawsuit.
c.Entity with its own legal status
d.In most cases, it is taxed like a sole proprietorship.
e There is no restriction to the number of owners.
DISADVANTAGES OF A LIMITED LIABILITY COMPANY
a.Annual administrative fees can be significant.
b.Individual tax liability
c.It is suggested that you seek legal and accounting help.
Conclusion
This chapter delves into the principles of organizational architecture that are critical for strategy execution. When arranging activities within their firms, leaders of firms ranging from the tiniest sole proprietorship to the largest global company must make judgments about delegation of authority and responsibility. Choosing the most efficient and effective labor division is frequently the starting point for more complex considerations in business.
