Advantages And Disadvantages And Cons Of Business Formation

Improved Essays
Business Formation
When more than one people decide to form a business, several important considerations have to be made. One of them is which organization form to take. So as to make the favorable choice, the cons and pros of each choice must be put into consideration. Additionally, the state of affairs, financing options, business laws and the magnitude of the risk involved must be well thought about. This paper discusses the advantages and disadvantages of corporations and partnerships as well as equity and debt financing and how choosing any of them would affect a business’s future. For the trainers Donna Rinaldi, Rich Evans, and Tammy Booth to make a decision, they have to consider the following advantages of a partnership. To start
…show more content…
Firstly, they would suffer from unlimited liability since the partners are held legally responsible for the business debts and legal duties. This means that the partners’ properties may be apprehended to pay creditors. Secondly, disagreement between partners in decision making or management could bring the business down and could also sour the relationship between the partners. In case of disagreements among the partners, the partnership cannot be sold as a whole to a third party without interfering with its sustained functioning. Thirdly, since the profits and losses are shared equally in a partnership, a partner who is contributing more may not reap the benefits of extra input .in the same line, the continuity of partnership is threatened by the death of the partners (Empson and Chapman …show more content…
Since the corporation is considered as a separate legal entity from its owners, the shareholders would not be held liable for the business debts or legal business requirements. Moreover, the continuity of the business would be assured even after the death of the shareholders. In the same line, a corporation is in a better position when it comes to raising capital for the business. This can be achieved by selling stock shares and creating more effective stocks. Additionally, due to its independent entity the ownership of a corporation can be easily transferred without interfering with its running (Balotti and Finkelstein 2008). Nevertheless, the following shortcomings are connected to a corporation. Firstly, the starting capital for a corporation is high. Besides, starting the corporation could consume more time due to the many legal formalities which are involved in the process. A corporation also requires extensive documentations to be submitted annually to the government. This compels them to follow a restricted form of management as it is defined in its charter. Moreover, the corporate would have to pay government tax as an independent entity (Penman and Stephen

Related Documents

  • Improved Essays

    First, a corporation should look into their internal objectives. It is imperative to know what the goals of the company are and how they will be aligned with the marketing strategy. The business should look into creative ideas that are within the budget, and show strategies to senior management of how these will be achieved efficiently. World Events Corporations should be aware of what is happening around the world. International news and forecast can help the business know if they should keep investing in an area or move on to another.…

    • 722 Words
    • 3 Pages
    Improved Essays
  • Superior Essays

    Limited Partnerships

    • 1506 Words
    • 7 Pages

    Following a c corporation there is the s corporation. S corporations can be formed in order to avoid income taxes at a corporate level to avoid double taxation, unlike the c corporation. A similar advantage to the c corporation that is present with the s corporation is that shareholders are not personally liable for debts of the company, which releases them from any obligations to repay debt or outstanding funds if the company begins to fail, however the shareholder would still lose…

    • 1506 Words
    • 7 Pages
    Superior Essays
  • Improved Essays

    Business Strategy Analysis

    • 1035 Words
    • 4 Pages

    To the shifting boundaries that comprise business strategy with the concepts of shareholder and stakeholder capitalism. We have also contrasted the differing views on strategy creation from both designed and emergent strategy, arrive at the view that both is required to afford a firm the opportunity to be able to deliver on its strategic goals. Lastly the author of this paper has defined strategy as being able to determine a vision that allows a one to be able to not only compete in the right arena, in addition to bring to bear the best tools and options it has to be able to achieve victory or…

    • 1035 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    However, as a sole proprietor, Tilly would be personally liable for all of the debts of the business and any lawsuits that may come about. Joshua Levenson, who writes for NOLO says, “This means that if your business doesn 't pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions” (Levenson, n.d., para. 4). Because Tilly is averse to taking on this liability, I would suggest that this structure will not best serve her business…

    • 906 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Key Term Business Risk

    • 716 Words
    • 3 Pages

    It asks the questions, what are the key decisions that are made in the business, when are made, who makes them, and why do those individuals make the decisions that they do? It generates ideas for innovation and combating business risks. The article summates about designing or redesigning a company’s business models to better tolerate risk and outpace…

    • 716 Words
    • 3 Pages
    Improved Essays
  • Great Essays

    Competitive or business strategy defines the basis on which it will compete. Corporate strategy is typically decided in the context of the organization’s mission and vision (what the organization does, why it exists, and what it intends to become). Corporate strategy is concerned with deploying the available resources to achieve your objectives whereas tactics are concerned with employing them. Strategy will affect the overall direction of the organization and establish its future working environment. It aims at answering fundamental questions such as •…

    • 1043 Words
    • 5 Pages
    Great Essays
  • Superior Essays

    Business Ownership

    • 1059 Words
    • 5 Pages

    The general partner or partners are responsible for managing the partnership and are jointly and severally liable for the partnership’s debts, however, limited partners who become active in the management of the partnership risk losing their limited liability status. (Prescott, Madden, & Foster, 2010). Finally the Master limited partnership (MLP), is little different they can be referred to as publicly traded partnership; they are owned and ran like a corporation however most of the time taxed like a partnership. The disadvantages of a partnership besides the ones mentioned are unlimited liability, normally when you have more than one person running a business you will run into management disagreements. A partnership is terminated if any one of the general partners dies, withdraws, or in any other way cannot be part of the business.…

    • 1059 Words
    • 5 Pages
    Superior Essays
  • Improved Essays

    Advantages of a Sole Proprietorship: There are numerous reasons why an individual would decide to begin their business up utilizing a sole proprietorship structure. Beginning a sole proprietorship is substantially less muddled than beginning a formal corporation, furthermore much cheaper. A few states permit sole proprietorships to be shaped without the twofold taxation benchmarks appropriate to generally corporations. The owner of a sole proprietorship is not needed to record a separate business tax report. Rather, they will list business data and figures inside their individual tax return.…

    • 903 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Corporations, on the other hand, are generally reserved for larger businesses and are more costly and heavily regulated. This form of business is run by a Board of Directors which contains shareholders and because the Business is a separate entity from the owner, the shareholders personal assets are secured and they are only personally liable, meaning that as a shareholder you would be protected from any debts that may befall the company. The number of shareholders would not affect the continuity of the organization which is ideal if you want to have a second factory elsewhere. In a C-Corporation, you would be taxed twice, once when the business files a tax return and then later on when the…

    • 737 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    One argument against it is that it allows people to use the firm’s resources for their own needs (Jensen, 2002), perhaps even exacerbating the agency problem where managers can start to dubiously distribute the wealth of shareholders to ‘stakeholders’ (Sundaram and Inkpen, 2004). The theory is also sorely lacking in empirical support and some evidence even point to how adherence to the theory affects financial performance negatively (Meznar,…

    • 705 Words
    • 3 Pages
    Improved Essays

Related Topics