Chapter 8, Problem 1Q

To determine

Describe the three major forms of business organizations.

Explanation of Solution

Forms of business organizations:

Sole proprietorship: It is one form of simple business that is owned and maintained by a single person. Obtaining business licence from the local government is required to setup the sole proprietorship. Government provides tax advantages for these firms.

Partnership: Partnership firms are started by two or more individuals joining together. This form of partnership is very easy to form and there is a shared control. The duties and formalities of the concern are formalized by making a partnership agreement. In this type of business organization, individuals with similar interest join together and start-up a business. As previously stated for sole proprietorship, partnership firms too enjoy tax advantages.

Corporation: Corporation is a form of business organization which is created and organized as per the laws of the state. There is a separate legal entity in this form of business organization that means, it is owned by shareholders and managed by a board of directors. The transfer of ownership and raising funds are easy in this form of organization. No personal legal liability exists among the shareholders.