Question

You are considering opening a retail establishment, ABC Company and need to make a number of decisions regarding this new company and prepare a number of documents.

Determine the type of organization you would like for your company (sole proprietor, partnership, corporation, etc.) and explain the advantages and disadvantages of your selection.

Answer 1

First you needs to understand the given terms,

A sole proprietor is the person who is completely a single owner for the profit they earn in the business (revenue collected less cost) and bear the whole loss if there is any.

Advantages :

• Applying for this firm is easy as it requires less time spend, less paperwork and less money invested while registering for a firm.
• They can employ as many employees and grow their business and the tax benefits from hiring as many people increases as they hire more.
• They are their own boss and not dependent on anyone else while taking the huge decision for their business.

Disadvantages:

• The owner is fully liable to pay for the losses. If one firm starts operating at less, it becomes really difficult to cover the losses and expand for one person.
• Business ends when the sole proprietor is no more as it is the sole owner. If owner dies, business dies with them.
• Initial funding is really difficult for one person and taking loans are also not easy.

Partnership is a group of people coming together for who set up the firms and manages the whole business. Profit and losses are to be shared among them according to the money they invested in it.

Advantages :

• Two or more is always is better than one while they share their thought process which may helps in reducing risk.
• more funding is available as they are many heads to invest.
• there is a process for splitting up if you wants to.

Disadvantages :

• if partners join or leave, you will probably have to value all the partnership assets and this can be costly.
• there is a risk of mismanagement or not meeting the consent when there are more partners.

Corporation is usually a group of people entitles to works as a single entity.

Advantages :

• The shareholders of a corporation are only liable up to the amount of their investments.
• Public corporation can raise money by selling their bonds.
• The ownership perpetual life is full as the ownership passes to the generation of investors.

Disadvantages :

• Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay taxes on any dividends received, so income can be taxed twice.
• If there are investors with no single goal, management will work blindly.

I would work as a sole proprietor as i wants to work as an single entity and works as an independent businessman. I do not wants to be dependent on someone else to approve the same thing which you thinks is right for the firm.