Post your response to the following focus questions Describe

Post your response to the following focus questions:

Describe a sole proprietorship and discuss its advantages and disadvantages.

Describe a partnership and discuss its advantages and disadvantages.

Describe a corporation and discuss its advantages and disadvantages.

Describe an S corporation and discuss its advantages and disadvantages.

Solution

Broadly speaking for conducting any type of Business activity we require to have a Business entity. If the Business entity is owned and operated and managed by a single paerson then such Business entity is called a sole Proprietorship. It is most simple and subjected to least terms & conditions governing the business activities. The main disadvantages includes personal liability of the owner/ propreitor, which is unlimited. A single person being at the helm of affairs poses limitations on the development and growth of the business. Propreitorship has its death with the death of the owner.

A Partnership as the word suggest is that form of Business entity which is owned by two or more persons and formed under an agreement signed by all owners for some common purpose/ goal and or objectives. A partnership firm is more complicated than the sole propreitorships, two or more persons as owners may give advatages of sharing resources, knowledge, skills which are essential for setting up of businesses of sizes unmanageable by a single person. Pooling diversity of partners helps in the development and growth of the Business entity. Like sole propreitorship, the partners under partnerships may be subjected to unlimited liabilities under or arising out of the business activities of the Partnership firm. There are additional set of rules & regulations under the law of the land governing the partnership firms.

The third and the most prefered form of business entity is an incorporated firm called corporation and or company. A corporation/ company is different from its owners. This form of business entity draws difference between the owner and management of the business entity. Unlike the earlier set ups of Sole Propreitor and Partnership, the business activies are conducted neither by sole owner nor by partners but managers who are considered to be having different identity than the business entity which is also considered as a legal person. A corporation can be sued and it can also sue others in the court of law.A corporation comes into existence with its incorporation documents such as Memorandum of Understanding, Articles of Associations, Delegation of Powers etc. These documents required for giving birth to the corporation varies from state to state, nation to nation, lews of the land under whose jurisdiction it falls. The main advantage of a corporation is to give limited liability to its owners who are called share holders and its business activities are conducted by the professionals having required qualifications and skills. Just like its birth, its death is not related to that of its share holders (owners). A corporation/ compay continues to exist with entry/exit and or replacement of its share holders.

There are various types of corporations such as private compnay, public sector, departmental, local, state, national, international etc. S corporation is one which pass on its income tax liability to its share holders. Such corporations just file an information report, the liability of taxes is with the individual share holders who are limited in number and all are supposed to be of same kind. S corporations are supposed to be domestic corporations not having more than hundred shareholders. The main advantage is in the form of avoidance of double taxation, firstly at the corporation level and then gains/dividends in the hands of its shareholders. Normally if share holders are very rich persons they may have to pay taxex at higher rates. In case of losses of the corporation that when passed on to share holders may reduce their total taxable income. In a way S corporations are treated similiar to partnerships for taxation but it can change its status to that of what is termed as C corporation by giving notice in advance as per laws of the land.