There are various forms of business organizations which define how business units are structured. It is usually the primary responsibility of the owner or owners of the business venture to determine the form in which it operates. While making this decision, the entrepreneur needs to have several variables in mind with respect to the various forms of business organization as anchored in the law. There are four main types or forms of business organizations recognized by law namely sole proprietorships, partnerships, corporations and cooperatives. One of the variables considered is the issue of capital to venture into the business. A sole proprietorship requires minimal initial capital to start as compared to other forms of businesses such as corporations and partnerships. On the other hand, it is easier to raise capital for expanding the business in a corporation through the stock and the floating of shares which is not possible in a partnership or a sole proprietorship. Another key variable that should be considered is exposure to liability. In both sole proprietorship and partnerships, the liability is unlimited which essentially means that the entrepreneur’s private and personal property can be sold to pay off debts incurred.
On the other hand, there is limited liability in a corporation which means that the shareholders are only liable for debts to the company only to the extent of their shareholding or guarantee for corporations limited by guarantee. Another key variable to be taken into account is the issue of taxation. Corporations pay higher taxes in the form of corporation taxes as compared to partnerships and sole proprietorship organizations which easily file their tax returns. Similarly, profit and loss sharing is another variable to be considered. In a sole proprietorship, the owner takes home all profits alone and in the case of losses, suffers the whole burden alone. On the other hand, in a partnership, the profits or losses are shared between the partners while in a corporation; the same is shared amongst the shareholders after the dividend is declared. While deciding on the form of business organization to found, it is also necessary to look at the legal formalities involved. When starting a sole proprietorship or a partnership, there are few legal formalities involved. However, there are complex and costly formalities involved in the setting up of a corporation. Further, a partnership or a corporation benefits from the synergy that is availed by fellow partners or shareholders as opposed to a sole proprietorship where the owner’s efforts and skills alone are involved. Another key variable is the issue of continuity of the organization following the death of the owner. The death of the owner of a sole proprietorship or a partner in a partnership spells the end of the venture. On the contrary, the death of a shareholder does not terminate the corporation as the surviving shareholders continue with the corporation.
The most appropriate business would thus be a corporation owing to the benefits attendant to it such as the ability to raise high capital, the prospects of high profits and the continuity of the business venture even upon the withdrawal of some of the owners. Though a corporation requires several legal formalities and faces high taxation rates, it provides a secure and reliable mode of investment.
The nature of a business venture to which I would apply this criterion is an investment company. A group of investors who have pooled their resources together and want to obtain an investment vehicle through which they will invest their funds in real estate would be best suited to start a corporation. Firstly, a real estate investment requires very high capital which can only be raised through the floating of the shares or the selling of the stock of a corporation. Further, since the investors are many, they would be suited to start a corporation since a sole proprietorship or a partnership has a maximum of owners that can found the venture. It is also the case that in a corporation, the withdrawal owing to a misunderstanding or the death of one of the investors would not mean an end to the venture. More so, the business as a corporation would benefit from the synergy of skills and knowledge offered by the various investors which will propel the business to a higher level. More so, since the real estate business involves large sums of money, the investor’s personal property would be cushioned owing to the unlimited liability of corporations in the event that the business suffers losses.
Bartoli, E and Leo Spier. "An Analysis of Legal Forms of Business Organization In Western Germany and The United States." American Business Law Journal (2006): 23-36.
Miao, B. "A Comparative Study of Legal Framework for Single Member Company in European Union and China." Journal of Politics and Law (2012): 102-111.