Advantages of a Partnership

Ø A partnership is relatively easy and inexpensive to establish.

Ø There are more possibilities in raising funds because the borrowing power of two or more partners is greater.

Ø Each partner can benefit a partnership by his/her knowledge, skills or ideas and specializes in certain activities of the business.

Ø Like a sole proprietorship partnerships are subject to special tax treatment. Any profit of a partnership passes on to its owners, who report their portion of earnings on their personal income tax returns.

Disadvantages of a Partnership:

Ø A partnership has unlimited liability and if it is unable to meet its financial obligations, partners have to use their personal assets to pay off all the business’s debts.

Ø Profit sharing can excite controversy when one or more partners aren’t putting great efforts into the management of the business.

Ø Disagreements between the partners may cause management conflicts. Partners’ different ideas on how to run the company can lead to disagreements that are likely to harm its business activity.

Ø The partnership is terminated because of the withdrawal or death of a partner. If the business is to continue, a new partnership agreement must be drawn up.

Unlike a sole proprietorship or a partnership, a corporation is a business that is authorized by law as a separate legal entity with its own powers, responsibilities, and obligations. The essential feature of a corporation is its legal independence from its owners. Ownership of a corporation is represented by shares of stock also called stock or shares. The corporate owners are known as shareholders or stockholders.

Advantages of a Corporation:

Ø Limited liability is one of the major advantages of a corporation. Shareholders are not liable for the debts of a company they own shares in. If a business fails shareholders can lose no more than he or she has paid for the shares of stock but their personal assets – car, home, and personal bank accounts – are safe from the creditors of the business.

Ø Being a separate legal entity, the corporation actually owns and operates the business for the benefit of the shareholders, but under their total control.

Ø Shares of ownership are transferable. Stockholders can enter or leave a corporation at will simply by buying or selling shares of stock.

Ø Corporation has unlimited life. The corporation’s power of succession enables it to have a continuous existence. Unlike a sole proprietorship, the death of the corporate stockholders will not terminate the corporation, since their shares are passed on to their heirs.

Ø It is much easier for a corporation to increase capital to manage and expand its operations. To raise additional funds corporation attracts new stockholders by selling its new issues of shares to the public.

Дата добавления: 2015-10-21