What are the 3 forms of business organization, and what are the advantages and disadvantages of each form?
The three forms of business organizations are sole proprietorship, partnership and corporation. The advantages of sole proprietorship are it is easy to organize and least expensive. The profits of the business go directly to the owner’s personal income and it is also easy to dissolve. The disadvantage of a sole proprietorship is that the sole proprietors have unlimited liability and are legally responsible for all the organization’s liabilities.
The advantages of a partnership are it is easy to establish and it is easier to generate funds because there is more than one owner. The disadvantage is that the partnership has a limited life because it can end with the withdrawal or death of the partner.
A corporation’s advantage is that the shareholders are not accountable for the debts of the corporations. Another advantage of a corporation is it is easy to generate funds through the sale of its stocks. The drawback of forming a corporation is it takes a longer time to form. It is monitored by several federal, state and local agencies.
For a corporation, what is the overall goal of the financial manager? Do you agree with this goal? Why or why not?
The overall goal of the financial manager is to maximize the current value per share of the existing stock. Consequently, there is a need to maximize profit so that the price of the stock will rise.
Yes, one agrees with this goal because no one in his right mind will enter a business if it does not generate profit. The financial manager therefore should ensure that all the financial decisions that he makes, whether in the short-run or long-run must be towards the realization of this goal. It is however important that the organization does not compromise its values and ethics just to gain profit.
Missouri Small Business and Technology Development Centers. (2013). Forms of business organizations. Retrieved from kcsourcelink.com: http://www.kcsourcelink.com/startup/registrations-licenses-and-permits/forms-of-business-organization
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2008). Chapter 1.4 - The goal of financial management. In S. A. Ross, R. W. Westerfield, & B. D. Jordan, Essentials of Corporate Finance, 6th ed. McGraw-Hill Higher Education.