Explain the main advantages of:
- (a) Proprietorship.
- (b)
Partnership . - (c) Limited Liability Company.
Explanation of Solution
Proprietorships: Proprietorship is a form of organization, which is owned, and controlled by an individual called the proprietor. The owners’ liability is unlimited. The most common proprietors are lawyers, physician, a small business owner and more.
Partnership: It is that form of organization which is owned and managed by two or more persons who invest and share the
Limited Liability Company: It is that form of organization which is formed as a legal entity with state charter that provides limited liability to the owners. It has a common seal.
(a) The main advantages of Proprietorships are:
Easy of formation: It is easy for forming this type of entity.
Non-taxable entity: This entity is not taxed for federal income tax purposes.
(b) The main advantages of Partnership are:
Expertise can be pooled: Expertise from different field can be pooled in as required for a business under partnership.
Non-taxable entity: This entity is not taxed for federal income tax purposes.
(c) The main advantages of Limited Liability Company are:
Legal entity: A limited liability company has a legal entity separate from its owners. It can transact business and represent the company of its own.
Expanded access to Capital: A limited liability company can pool a big capital required for the business through issuing shares to the public.
Separation of ownership and management: The management of the company is taken over by the professionals, separate from the owners.
Sustainability: The existence of the limited liability company continues for a long period of time and does not wind up with the death of any shareholders unlike partnership.
Easy transferability of ownership: In limited liability company, the ownership is transferred easily through buying and selling of shares in stock exchange.
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Chapter 12 Solutions
Working Papers, Chapters 1-17 for Warren/Reeve/Duchac’s Accounting, 27th and Financial Accounting, 15th
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EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT