Review Question

1. Describe Four Forms of Legal Organization for a Business and

Discuss the Advantages and Disadvantages of Each?

SUMMARY Sole proprietorships are owned and operated by one person, are easy to set up, have low start-up costs, and get tax benefits, and their owners enjoy freedom. However, they have unlimited liability, a lack of continuity, and limited resources. Under a general partnership, all partners have unlimited liability. Partnerships may lack continuity and transferring ownership may be difficult. On the positive side, part- nerships can grow by adding new talent and money, partners are taxed as individuals, and banks prefer to make loans to enterprises that are not dependent on one indi- vidual. All partnerships should have a partnership agreement. Corporations are separate legal entities; they have property rights and obligations, and they have indefinite life spans. They may sue and be sued; buy, hold, and sell property; make and sell products; and commit crimes and be tried and punished for them. The biggest advantage of incorporation is limited liability. Other advantages include continuity, professional management, and improved ability to raise money by selling stock. Disadvantages of the corporation include high start-up costs, complex- ity, and double taxation. The majority of corporations are privately held. In forming a corporation, a business will incorporate federally if it is going to operate in more than one province and provincially if it is going to operate in only one province. A co-operative is an organization that is established to benefit its owners in the form of reduced prices and/or the distribution of surpluses at year-end. On the positive side, co-operatives are democratically controlled, enjoy limited liability and continuity, and are not subject to double taxation. The main disadvantages include difficulty in raising equity