Forms of Business for the Investors, Essay Example

Abstract

A new product to the market requires an investors who is strong to meet all the challenges that are been discussed in this paper. The demand for the new product is usually low at starting point, but as the time goes by, it rises as consumers becomes a wear of it. This means an investor has to use sale promotion techniques to create awareness into the market in order to pursue the consumer to accept the product.

There are various forms of business which an investor can kick off with; among them are sole proprietor, partnership and corporation. Each an every form of a business has its merits and demerits over the other one. This paper has provided both merits and demerits for the three forms of business.

Sole Proprietorship (Sole Trader/proprietorship)

A sole proprietorship is a type of business entity which is been owned and run by one person and where there is no legal difference betwixt the business and the owner. In a sole proprietor business, all the losses and profit usually accrues to the proprietor (subject to taxation). Moreover, when comes to business assets, they are all owned by the proprietor and incase of debts, it’s proprietor burden and he/she must clear it from his/her personal resources. This means that, this type of business form has unlimited liability to the owner. This is because the owner doesn’t have partners (Hussey, 1989). However, a sole proprietor is been allowed to trade without using his or her legal name. This gives him/her an opportunity of opening businesses accounts with the banking institution. (Bell, 2002)

Advantages of Sole Proprietorship

The foremost advantage of a sole proprietorship is, they are easy to start up, because it has few regulations, easy to discontinue, total control over the business. Also, the owner enjoys all the profits alone (Bowey, 2005). Moreover, this form of a business isn’t a corporation, meaning it doesn’t pay corporate taxes but the proprietor is the one in charge of paying self employment taxes which is normally based on profit made, meanwhile making accounting more simpler when made a comparison with a corporate entity. A sole proprietor has also a quick decision making since he/she doesn’t need to inquire from others like partnership, which you have to consult to all members.

Disadvantages of a Sole Proprietor

A sole proprietor business has a hard time of raising the capital, since he/she has to make business’s funds for his own. Also, the proprietor has unlimited liability, since he/she is been responsible for all business’s debts as he/she has the total control over the business. Moreover, as sole proprietor business grew, also the chances of risk tend to rise and to minimize these risk, the proprietor tend to form a corporation or a limited liability company. Also, incase of loses, the sole proprietor bares it alone, unlike partnership where all loses are been distributed equally to all members.

Partnership

A partnership is a type of business entity where the owners share shares profit and loses equally. The owners (partners) are frequently preferential over corporation for taxation reasons, this is because of the business structure which doesn’t incur a tax before it is been disseminated to the partners. I.e. there isn’t dividend tax levied. On the other hand, the partners might exposed to larger personal liability compared with the shareholders of corporation where there isn’t. Also, in a partnership business, it’s illegal for an individual partner for him/her to open a competitive business similar to partnership business. This favors the partners business and can enjoy the benefit of monopolistic if there’s no other competing business from other investors outside the partnership.

Advantages of Partnership

It is much easier to secure finance in a partnership compared to a sole proprietor. An investor can also operate on a general partnership, if she/he will own or operate the business with more than one partner for the aim of making profit. Also, unlike sole propriety, partnerships are legally entities divided form partners themselves. There are two kinds of partnerships which are available to all investors: Limited and general partnerships.

Disadvantages of Partnership

It has a slow decision making; compared to a sole proprietor where you don’t require consultancy from any person, in partnership, any decision has to be accepted by majority of the partners. Also partners don’t pay themselves salary, instead they usually shares the profit and loses according to the numbers shares contributed by each partners. Also, unlike sole proprietor, partnership business is comparatively inexpensive to get going.

Corporation

According to Williams, J. (2000) a corporation is a legal entity which is been constructed under the authority of a state’s laws, containing a group or individual who become shareholders. A corporation is much separate and distinct the owners and the personnel’s who manage or control it. Moreover, it can enter into agreements, pay taxes disjointedly from its owners, sue and be sued and do other task obligated to conduct business. Due to its complicated process, you may hire attorney for the guidance.

Advantages of a Corporation

It has limited liability; has a corporate tax treatment; Attractive investment; has capital incentive; freely transferable shares and perpetual existence.

Disadvantages of a corporation

It cost money to incorporate; long formalities procedures; has huge paperwork; disclosure of names of directors and corporate officers; dissolution doesn’t happen automatically and it has a double-tax consequence.

Reference

Bell, D. (2002) Forms of Business, New York: Macmillan Publishers.

Bowey, A. (2005) Corporate Business, London: longhorn Publishers.

Hussey, B. (1989) Sole proprietor Business, Theory and Practice, 2^nd end, Oxford, Press.

Williams, J. (2000) Benefits of Partnership over Sole Proprietor Business, Washington: Penguin Press.