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3 Forms of Business Organizations
Grade Received - "A"
What are the three forms of a business organization?
What are the advantages and disadvantages of each form?
For a corporation, what is the overall goal of the financial manager?
Do you agree with this goal?
Why or why not?
In this discussion I will attempt to discuss what the three forms of
business organizations are and discuss what the advantages and
disadvantages are for each form. I will then explain what the overall goal
of a financial manager is when it comes to a Corporation and if I agree
with these goals. Depending on the types of classes that have been
taken or if you are a business owner yourself, some of these questions
should be somewhat common knowledge.
Reading from the text book, there are three legal categories when it
comes to a form of business. The three legal categories are partnership,
corporations and proprietorships. Most businesses that are started our
sole proprietorships. They are owned and operated by one person.
Partnerships are owned and operated by two or more people and
corporations are legal entities that exist independent of owners (Brooks,
Proprietorships have many advantages. One is that it is easy and
inexpensive to form and dissolve. For less than $100 you can get
yourself a business license and be a new business owner and if you
decide the next day you want to shut the business down, it is well within
your power to do so. All of the profits also go to the owner and have
direct control of the business. When it comes to government regulations,
proprietorship has more freedom to these regulations than corporations
with no special taxation. With the advantages with sole proprietorship
come disadvantages.
First and foremost, it is hard to raise capital because banks are very
wary to loan money to sole proprietorships. There is also unlimited

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liability and potential loss. Many small businesses obtain million-dollar
insurance policies in order to cover themselves because of the potential
that a customer can sue them for everything they own. There will be
limited expertise in many areas. A mechanic who owns a repair shop
may not be a good account. They may also have trouble finding
employees, they need to commit a large amount of personal time and
may have an unstable business life. Lastly, the business will only last as
long as the owner (Brooks, 2010).
Advantages of partnerships are also that they are easy and inexpensive
to form. With a partner, the business owners will be able to share diverse
skills and expertise with one another and if there is someone else there
to work, it will provide more flexibility in the work schedule and tasks that
need to be conducted. Partnerships also are relative to have more
freedom and government regulations than corporations.
A few disadvantages of partnerships are the same with any type of
"relationship" and that is, there will be some type of conflict between
partners and it may be hard to leave or end the partnership. With the
same as sole proprietorship, there is also a limited liability and potential
loss. Regardless of how one may feel when it comes to the amount of
work that one does, profits will have to be shared with one another.
For corporations, a few advantages are that it has limited liability
(Brooks, 2010). If the customer tries to a Corporation, they can only sue
for the assets that the Corporation owns. Because banks look at
corporations as a stable investment, it is easy to get financing and also
transfer ownership (Brooks, 2010). There is also an unlimited lifespan of
the Corporation unlike so proprietorships, corporations can last for
generations. There are also tax deductions for corporations. For the
disadvantage aspect of corporations, there is a double taxation of profits
and are costly and complex to form (Brooks, 2010). It can consist of
more paperwork and having a lawyer to help form a business.
Corporations also have a lot more government restrictions.
The overall goal of the financial manager for corporation is to supports
the operations of the Corporation through financial activities and
decisions (Brooks, 2010). Financial managers do so by how the money
of the Corporation is used, borrowing funds in order to finance future
projects and the repayment of borrowed funds (Brooks, 2010). I do in
fact agree with these goals because corporate finance allows

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corporations to generate the type of money they have due to the
decisions and guidance financial managers have provided for them.
Money is not going to make itself and if money is not made, businesses
cannot expand, technology will come at a standstill and quality of life will
not get any better.
Brooks, Raymond M. (2010). Financial Management: Core Concepts
(2nd edition). Upper Saddle River, NJ: Prentice-Hall.

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