Question

State the various types of business organizations that exist and explain the distinguishing characteristics of each

Answer 1

The various types of business organizations exists and the distinguishing features of each of them are:

1) Individual Proprietorship: The business organization is easy to establish. The decision making by the single owner is always clear and beyond-question. The owner has to arrange the capital on its own risk. The owner is having unlimited liability. Also the existence of the business exists at the back of the owner and business may ends with the end of the owner. The earnings usually taxed only once as personal income.

2) Partnership: Easy to establish as that of sole-proprietorship. The decision-making is in the hands of the management of the partners, which would be sure and definite. The ownership attached with the partners. There could exists complications is the decision making as two or more partners have to settle at one decision. The partners have the unlimited liability towards the organization. The partner arranges their portion of the capital. Also, the ability to arrange capital is always limited. The earnings of the partnership are only taxed to the personal income of the partners.

3) Corporation: It is the corporative effort of many owners who are having limited liability upto to their invested share amount in the organization, so called shareholders. The corporation has its own separate legal status well away from the owners. The owners may come and go but corporation carry-on forever. The corporation can raise huge capital through issuing bonds and capital stock. It employees the Directors board and agents of the shareholders ie. the employees. The wrong decision-making is very much likely in the organization due to too many brains. The corporation has to face double taxation ie. tax on profits of the organization and on distributed profits to shareholders ie. dividends.