The three forms of business organization include sole Proprietorship, Partnership and Corporation. In a sole proprietorship, one individual owns and controls the business. The person handles all complains from customers, bears all risk of ownership, make decisions and most importantly the person receive all the benefits from the business (Abareshi, 2010, p. 27).
However, the owner can seek the help of members of the family in operating the business. In partnership, two or more persons agree to do business together with an aim of earning and sharing of profits. The business can be ‘‘carried on by all partners or any of them acting for all” (Sharon, 2010, Para.2). The partners take the responsibility of controlling and managing the business as spelt out in the partnership deed.
In corporation, there is separate legal entity between the business and the individuals within the entity. Since its structure is complex, it is frightfully expensive to organize. The management of corporation lies with an individual who owns most shares of stock and decision from the board. However, the size of the corporation affects how it works formally or informally.
Sole Proprietorship is advantageous because it is easy to form. It requires few or no legal formalities. Since the owner receives all the benefits, he or she feels motivated and even extend personal interest to the business as well as maintain business secrecy, which is indispensable in the competitive business (Fulghieri, 2009, p. 1298).
In addition, the owner is free to take any action and make quick business decisions hence promote self-reliance and independent living. The owner can also earn goodwill from customers because he or she is in close contact with them. However, sole proprietorship has disadvantages in terms of the limited resources and managerial abilities.
There is unlimited liability that creates fear for expansion leading to no economies of large scale. Besides, there is lacks continuity especially if the owner is sick, handicap or dies. The advantages of Partnership lie in the partners and legal requirements. Its formation requires less expenses and legal formalities. Comparably, partnership has larger resources that increase the scale of operations.
Since partnership involves two or more individuals with diverse talents, experience and managerial skills, there is scope for better managements of the business. Efficiency in management results to greater interest in business, balanced judgment, flexibility and diversification. Moreover, all the partners share risks and losses of the business besides the advantages of unlimited liability (Abareshi, 2010, p. 16).
Consequently, the disadvantages of the partnership include substantial risk, as the liability is joint, and several, lack of harmony due to misunderstanding, limited resources because of the legal restrictions on the maximum number of partners and their contributions, no legal entity, instability incase of death and retirement, and lack of public confidence because they are formed with no legal regulations.
The biggest advantage of a Corporation is the limited liability. Individuals in corporations ‘‘have limits on their personal liability such that they experience no affect even if people sue a corporation for billions of dollars’’ (Sharon, 2010, para.1).
There is also separate entity between ownership and the corporation leading to unlimited commercial life. Moreover, in corporation, individuals can easily transfer their ownership by simply selling their stock leading to a greater flexibility in raising capital. However, the disadvantages of corporations include cost of complying with the regulatory restrictions, high costs of organizations and operations that may contribute to budgetary challenges, and double taxation due to tax payable on the corporation’s net income.
The overall goal of a financial manager for a corporation is decision making. The manager makes an objective decision that minimizes the risks and maximizes shareholder wealth and stock price resulting in the overall development of the corporation. In doing this, the manager requires a ‘‘good mastery of fundamental finance concepts and the use of a set of financial tools, which will result in sound financial decisions that create value for stockholders’’ (Fulghieri, 2009, p. 1319).
Therefore, any decision made should be in the best interest of the firm irrespective of the firm’s size. Personally, I agree with this goal because a quicker and an objective decision in the corporation require a well-versed financial manager with the correct and relevant information. The role of maximizing the price of the firm’s stock by reducing the risks is hectic.
This involves mathematical computations and analysis that should be handled with care, failure to which the corporation will run at a loss. However, ‘‘conflicts of interest can arise between stockholders and managers’’ (Abareshi, 2010, p. 10). Therefore, financial manger should not be the sole decision maker for the corporation because of the extension of the mistake made to all stakeholders.
Abareshi, A. (2010). The Choice of Business Strategy and New Organizational Forms:
Model and Instrument Development. Interdisciplinary Journal of Contemporary Research in Business, 2(5), 9-38.
Fulghieri, P. (2009). Organization and Financing of Innovation, and the Choice between
Corporate and Independent Venture Capital. Journal of Financial & Quantitative Analysis, 44(6), 1291-1321.
Sharon, G. (2010). Types of Business Organization. Retrieved 2 Oct. 2011. From