Basic Legal Forms of Organizing a Business

The Answers of Concept Questions

The Concept Questions of the Chapter 1

1. Forms of Business: What are the three basic legal forms of organizing a business? What are the advantages of each? What business do most start-up companies take? Why?

• Sole Proprietorships, Partnerships and Corporations are the three legal forms of organizing a business.

• Advantages:

o Sole Proprietorship:

 It is easy and inexpensive to start and stop legally the business in organizing.

 It is partially and respectively less expensive to start organizing a business.

 It does not have a profit sharing responsibility.

 It does not be required to a business tax.

 The owner of a Sole Proprietorship is in charge and makes decisions including selling or transferring business. So no extra budgets for executives and board of direction and also no doubt about agency problems. Also it provides a speedy decision.

o Partnership:

 It is also easy and inexpensive to start and stop legally the business in organizing.

 It make available to access a greater capital to manage, invest and so it provides more profit indirectly.

 It is also not required to a business tax.

 It has potential to organize an informal management structure to manage indirectly but almost accurate management easily.

 It makes available to access a greater skills of the owner, time to manage and money.

 It is not required to a written agreement; it is also advisable but not an obligation. So it is provide less legal responsibilities to the owners.

o Corporation:

 It does not obligate any personal liabilities to the stockholders (owners).

 The corporations are easily attracts large amounts of capitals.

 The corporations have respectively more durable lives.

 The corporations attract the skilled personals.

 It is relatively easier to raise capital in corporations.

 It is provided an easy and legal way to transfer ownership that’s not affecting the operations in the business in corporations.

• Sole Proprietorships are doing, in general, more start-up companies.

• The fact