Three Basic Forms Of Business Organization Essay

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o Identify and describe the three basic forms of business organizations. o What are the advantages and disadvantages of each form of ownership?

Single Proprietorship- Are entities that are owned and operated by the same individuals and is unincorporated. There are no specific laws or regulations that govern the creation and operation of this business. The advantage of this is the ability to start up is easy and requires minimal capital. A disadvantage to the owner is responsible for all the debts incurred by the business, which could hurt if one were to be litigated in any way.

Partnership- A partnership is an unincorporated business owned by two or more individuals. The agreement to engage into a partnership is usually written or verbal.
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Corporation- Is a business entity separate from the individual owners. Corporations are owned by shareholders or stockholders that have a vested interest in the business. Shareholders buy shares of a company which equate to ownership of a company. Corporations are usually formed by larger groups and must meet certain legal requirements. The advantage to a corporation is should a company fail the owners only loose the value of the stock they hold in the company. A disadvantage is the owners are subjected to criticism by board of directors and shareholders on performance.

o Distinguished-level: o Business entities can also be categorized by the type of business activities they perform. Identify and describe the three types. What do all three types have in common?

Service Companies- Perform service and are compensated as such, these including cleaning companies, dry cleaning and hair salons.

Merchandising Companies- Purchase goods at a cost that is then resold for a profit, this includes clothing and convenience
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The primary objective of every business is to be profitable and generate income and maintain solvency in their ability to pay debts and other obligations. The four basic financial statements that measure business goals are:

Income statement- An income statement reflects how lucrative a company is. This statement provides the net income of a period by calculating the revenue of cash into the company subtracted by expenses incurred.

Statement of retained earnings- Reflects the changes in earning of a company within a given period. The statement of retained income is generally two balance sheets reflecting the addition of net income and the deduction of dividends.

Balance sheet- Provides insight into the companies’ ability to pay debts and its financial position. The sheet lists the asset, liabilities and equity at the close of business on a specific date.

Statement of cash flow- Shows the in and out of capital for a company over a period of time, generally from operating, investing and financing costs.

o Distinguished-level: o Describe the difference between an asset, liability, and equity on a company 's balance

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