Business Structure

644 Words3 Pages
Business Structures
Marlana Sisson
August 10, 2014
University of Phoenix
James Ciaramella

When beginning a business, it is extremely important that the owners of the business decide the organizational form that will be beneficial to maximize the value of the firm. The owners must consider the size of the business, the taxation of the business, the liability of the owners and the ability to raise capital to finance the business (Parrino, Kidwell & Bates, 2012). The owners will then choose one of the 3 different forms: sole proprietorship, partnership or corporation.
Sole Proprietorship
Sole proprietorships are businesses that are owned by a single person. A sole proprietorship is the easiest to form and the most
…show more content…
Secondly, all partners share the profits in a partnership (Parrino et al., 2012).
A corporations is very different from sole proprietorships and partnerships. Corporations are owned by shareholders and are considered to be an independent legal entity. Corporations have very expensive administration fees and very complex tax and legal requirements. The main advantage of corporations is that the shareholders are not responsible for the debts of the company. They are only liable for their investment into the company. Corporations can also sell stock to raise any capital that is needed for the business. Corporations file a separate taxes from that of the owners. Owners of a corporation are taxes on the profits that the receive through salaries, dividends and bonuses. One major disadvantage of a corporation is that they are very costly and time consuming to start and maintain. Sometimes corporations can be subjected to double taxes through taxes on profits and then taxes on dividends. Corporations require an increased amount of paperwork and record keeping. A final disadvantage of this kind of business structure is that the business operations are handled by the managers and the board of directors who can cheat the owners of the business (Parrino et al., 2012).
Choosing the correct business structure is an extremely essential part of the business formation process. Selecting the wrong structure can become a very costly
Get Access