n Overview of Financial Management and the Financial Environment: Forms of Business Organization The basic concepts of financial management are the same for all businesses, regardless of how they are organized. However, a firm's legal structure affects its operations. The main forms of business organizations are: (1) proprietorships, (2) partnerships, (3) corporations, and (4) limited liability companies (LLCs) and limited liability partnerships (LLPs). In terms of numbers, most businesses are -Select- . However, based on the dollar value of sales, most business is done by -Select- . Businesses are frequently started as -Select- and then converted to -Select- when their growth results in disadvantages outweighing advantages. A proprietorship has three important advantages: (1) It is easily and inexpensively formed, (2) it is subject to -Select- government regulations, and (3) it is subject to lower income taxes than are -Select- . However, a proprietorship also has three important limitations: (1) A proprietor has -Select- personal liability for the business' debts. (2) The life of the business is limited to the life of the individual who created it. (3) A proprietorship has difficulty obtaining large sums of capital so proprietorships are used primarily for small businesses. A partnership has two important advantages: (1) It is easily and inexpensively formed and (2) its income is allocated on a pro rata basis to partners and taxed on a(n) -Select- basis so the partnership avoids higher -Select- income taxes. A partnership has four important disadvantages: (1) -Select- personal liability, (2) -Select- life, (3) difficulty of transferring ownership, and (4) difficulty of raising large amounts of capital. A corporation has the following advantages: (1) -Select- life, (2) ownership that is easily transferred through the exchange of stock, (3) -Select- liability, and (4) can -Select- raise large amounts of capital to operate large businesses. Its disadvantages are: (1) Corporate earnings may be subject to -Select- taxation and (2) setting up a corporation and filing required state and federal reports, which is more complex and time-consuming. Large corporations are known as C corporations. However, as an aid to small businesses Congress created S corporations. Limited liability companies (LLCs) and limited liability partnerships (LLPs) have limited liability protection like -Select- but are taxed like -Select- . Investors in an LLC or LLP have votes in proportion to their ownership interest. LLCs and LLPs have been gaining in popularity, but large companies still find it advantageous to be -Select- corporations because of advantages in raising capital for growth.