Question

Respond to the following in a minimum of 175 words:

• Briefly discuss the advantages and disadvantages of three types of business structures.
• Briefly discuss which type of business is best suited for the three types of businesses structures you listed.

Answer 1

Answers are as under :

Briefly discuss the advantages and disadvantages of three types of business structures.

1) Sole Proprietorship Business

Here the owner and business act as the same person. Only one person is involved in this kind of business structure. Here the owner of the business is personally responsible for the all liability of the business and will take away all the profit of the business. He can operate the business under his own name also.

Advantages are :

a. No registration is separately required to start sole propertiorship business

b. It can be started by single person. Hence no dependency on other person

c. Here legal compliance's are comparatively less which will lead to saving of cost and time

d. Simple form of business , even common business man can run it without expertise knowledge

e. Easy liquidity of assets and liability

Disadvantages are :

a. Unlimited liability of owner

b. As only person is involved in the business, on the death of owner business needs to compulsory get liquidated

c. Bank does not the grant loan easily to such form of business

d. Cannot accept loan from public

2) Partnership business

In partnership business, more than one person are involved in the business. It is entered into by two or more person by a legal agreement specific the partnership share, interest rate , drawing power, profit share, and other legal terms. Partnership holds a separate legal identity from the partner. Liability of each partner is limited to their capital share

Advantages are :

a. Partnership business is easy to form

b. It has separate legal existence which differ from individual partnership

c. People with versatile expertise , knowledge and funding options come together , which lead to development of new and unique idea

d. Can share profit of partnership business

Disadvantages are :

a. Bank does not the grant loan easily to such form of business

b. Cannot accept loan from public

c. Conflict of interest can arise internally

3) Company ( Private and Public Company)

A Company is a separate legal artificial person with perpetual succession and common seal. It is created as per the Companies Act and under certain rules and regulation. Company can be private or public, limited by shares, guarantee, one person company etc. Directors are appointed in a company, Shareholder are the members and owners of the company. Companies profit is carried forward and kept as a reserve for future or else it is distributed among the shareholder. The taxation and return filling of the company is separately done

Advantages are :

a. Company can get funding from the public for the business and expansion purpose by bringing IPO and issuing debentures

b. Company can easily avail the loan from bank and private institution

c. There are many government schemes and subsidy for which only corporations are eligible

d. Company has good and worldwide prestige rather than other form

e. Shares can be listed on stock exchange

f. It continues to exist separately from its shareholder

Disadvantages are :

a. Complex structure

b. Many legal requiredement while formation and reservation of company

c. Costly and time consuming process

d. All confidential information are available in public

Briefly discuss which type of business is best suited for the three types of businesses structures you listed.

From all above business structure, Corporation is best suited business structure as raising of fund is very easy here, advantage of tax and subsidy, public image , experience employee and perpetual existence