FORMS OF

BUSINESS
ORGANIZATION
• Sole Proprietorship
• Partnership
• Corporation
Sole Proprietorship

is a business owned and

operated by one
individual.
 SOLE PROPRIETORSHIP
(Advantages)

• Easiest and least expensive form of ownership to organize.

• Has complete control and decision-making power over the
business.
• Sole proprietors receive all income generated by the business
to keep or reinvest.
• Profits from the business flow-through directly to the owner's
personal tax return.
• A sole proprietor can own the business for any duration of time
and sell it when he or she sees fit. As owner, a sole proprietor
can even pass a business down to his or her heirs.
• Sale or transfer can take place at the discretion of the sole
proprietor.
• Minimal legal costs to forming a sole proprietorship.
• Few formal business requirements.
 SOLE PROPRIETORSHIP
(Disadvantages)

• Sole proprietors have unlimited liability and are legally

responsible for all debt against the business. Their business and
personal assets are at risk.
• May be at a disadvantage in raising funds and are often limited
to using funds from personal savings or consumer loans.
• May have a hard time attracting high-caliber employees, or
those that are motivated by the opportunity to own a part of
the business.
• Some employee benefits such as owner's medical insurance
premiums are not directly deductible from business income
(only partially deductible as an adjustment to income).
• All responsibilities and business decisions fall on the shoulders of
the sole proprietor.

• Investors won’t usually invest in sole proprietorships.

 Partnership

is a business owned and

operated by two or
more individuals.
 PARTNERSHIP
(Advantages)

• Partnerships are relatively easy to establish.

• With more than one owner, the ability to raise funds may be
increased, both because two or more partners may be able to
contribute more funds and because their borrowing capacity
may be greater.

• Prospective employees may be attracted to the business if

given the incentive to become a partner.

• A partnership may benefit from the combination of

complimentary skills of two or more people. There is a wider pool
of knowledge, skills and contacts.

• Partnerships can be cost-effective as each partner specializes

in certain aspects of their business.

• Partnerships provide moral support and will allow for more

creative brainstorming.
 PARTNERSHIP
(Disadvantages)
• Business partners are jointly and individually liable for the actions of
the other partners.
• Profits must be shared with others. You have to decide on how you
value each other’s time and skills. What happens if one partner can
put in less time due to personal circumstances?

• Since decisions are shared, disagreements can occur. A partnership

is for the long term, and expectations and situations can change,
which can lead to dramatic and traumatic split ups.
• The partnership may have a limited life; it may end upon the
withdrawal or death of a partner.
• A partnership usually has limitations that keep it from becoming a
large business.
• You have to consult your partner and negotiate more as you cannot
make decisions by yourself. You therefore need to be more flexible.
• A major disadvantage of a partnership is unlimited liability. General
partners are liable without limit for all debts contracted and errors
made by the partnership.
 PARTNERSHIP

In a partnership agreement, the following arrangements,

among others, should be spelled out:

1. How the business will be financed.

2. Who will do what work.

3. What happens if a partner dies.

4. What happens if one or both partners want to dissolve the

partnership.
 Corporation

Is a separate legal entity

distinct from its owners.
 CORPORATION
(Advantages)

• Owners have limited Liability.

• It can exist with continuity.

• Shares of ownership are transferable.

• It attracts more investors.

• You can be an employee of your own corporation.

• The corporation pays its own tax.

 CORPORATION
(Disadvantages)

• Incorporation is costly.

• Corporations are highly regulated.

• Limited liability may discourage creditors.

• It may result to double taxation.

• It is not easy to dissolve.

 Given below are the account titles used by the bookkeeper at Tan Services
II.

Incorporated:

ACCOUNT TITLES
Accounts payable Furnitures and fixtures Office equipment
Accounts receivable Repairs and Maintenance Office supplies expense
Accumulated Representation expense Tan, Drawing
depreciation
- office equipment Training expense Professional fee
Cash in bank Miscellaneous income Business tax payable
Bad debts expense Land Telephone expense
Commission income Building Tan, capital
Depreciation expense Taxes and licenses Notes payable
Electricity expense Income taxes payable Notes receivable
Income tax withheld Service Equipment Unused supplies
Salaries expense