Types of Business Organizations and Legal Consequences

This report discusses the different types of business organizations such as sole proprietorship, partnership, corporation, and limited liability company. It explains their advantages, disadvantages, and legal consequences. The report recommends adopting the partnership organization for the case study of Sam, who is a sole proprietor of IOM solution. It also highlights the importance of legal compliance for each type of organization. The report is relevant for students studying business and management courses.

Business
Organizations.

Table of Contents.
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Presenting types of business organization...................................................................................3
Recommendation.........................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
Business organization can be defined as an entity that has been form in order to carry out
a commerce. In other words, it is described as a business structure that help company in meeting
their goals in limited time frame. Moreover, the aim of every business is to earn revenue such
organization is stated as profit earning firm. Whereas, company with the motive of improving
the society likewise as providing education to poor or health care are known as non- profit
organization.
The present report is based on the case study of Sam that is a sole proprietor of IOM
solution that deal in selling electric part to the local garage. From last two-year company is not
able to earn the profit due to rapid change in the business environment. So, the study will
recommend the most suitable organization type that Sam need to adopt. Lastly, the report will
throw light on legal consequence of the types.
MAIN BODY
Presenting types of business organization
It is an institution that allow company to engage in the commercial process. There is a
different type of business organization that are determined by various factor such as paperwork,
taxes, working capital and personnel liability (Four main types of business organization., 2021).
Depending on the types and size of business there are 4 type likewise sole proprietorship,
corporation, limited liability and partnership that help business in growing in the competitive
market.
Sole Proprietorship: This type of business usually has one owner that run the company and
there is no separate existence of the firm. All the income and loss are taxed against the personnel
income of the onwner. Along, with this it does not require lot of paper and all the profit and loss
are bear by the individual. As well as owner of the organization is directly liable for the assets,
liability, profit and loss for the business. Moreover, the owner can choose its own name for the
business because of individual entity.
There are many advantage and disadvantage of this type that business has to face. Such as
owner has full control on the company that benefit them in knowing the major and minor detail
of the firm. Beside this the owner has full access to profit that contribute in investing in new
venture easily (Kasahu., 2020). Along with this it helps in gathering the feedback of the
company position in the external environment as well as internal strength. However, the owner

faces certain challenges such as high working capital demand that affect the operational cost of
the firm. As well as full responsibility of the company has to be bear by the owner that can result
in bad health due to high stress.
Furthermore, the sole owner does not have specific law that govern this type of business
and there are no particular rule and regulation that has to be followed by the owner while
conducting the business. In addition to this most of the organization do not have to do a lot of
legal work to run the business generally it only requires licence for establishing and conducting
the commerce. Moreover, the owner is responsible for the act of the business that can contribute
in damaging the brand image of the firm as well as reputation of the owner.
Partnership: It is a type of business between that have an agreement between two or more party
or an organization to run the business jointly. Generally, the parties share common goal so that it
can achieve it more rapidly and in efficient manner. As well as both the partner also share their
management, work culture, profit and loss of the business. Moreover, in the partnership each
member has to commit to the resources and liability such as skilled labour and capital in order to
enhance the performance of the business in the competitive market area.
There are three different type of partnership that a business scan adopts such as general,
limited and joint venture. Likewise, general partnership is can be defined as o business owned by
2 or more partner and the maximum limit can be 20 owners (Minzheong., 2020). That has agreed
to share their profit, loss capital and resources in order to sustain in the competitive environment.
Along, with this a legal agreement has to made among the partner that allow the member to have
unlimited liability that basically means that their personnel assets are liable for paying the
business debt. In addition, to this all the member have a liability to pay the personnel and
business tax.
Whereas, in the limited liability there are two of more member that agree for partnership but
din bot have limited liability. Such as one of the partner is liable for only the certain amount that
has been invested by it. In other word, one of the partner is also known as silent partner plays a
role of generating the finance and invest in the current and future business (Al Mamun and
Hasan., 2017). While the other partner follows general partnership such as it has to manage the
day to day function of the organization that are essential for enhancing the performance of the
business.

on the other hand, joint venture is known as legal agreement between more than two
members for sharing their resources and capital in order to accomplish the specific project or
common goal. Moreover, this is different from the general partnership as the entities of the
business is separate. This create problems while paying the tax and due to that the organization
should establish new entity. Beside this the legal consequence of the partnership is that it is
based on the agreement and any breach of the contract can make the partners liable for the
compensation. Along, with this in any debt of business the personnel asset of the members can
be used to settle the liabilities.
Corporation: It can be state as a group of people that unit together for achieving
particular purpose. It is a spate legal body that is elected by the board of directors the person that
het highest vote of BOD is selected as the owner of the company. Whereas depending on the
seize of the organization the various people are selected such as officer, shareholder and director.
Moreover, corporation has both the individual and organization legal right. Alike actual person a
corporation is can run the business till its profitable as well as shareholder can stop their
investment if the company is not able to sustain in the competitive environment. The major and
minor decisions of the firm is taken by discussing with the directors, shareholders and officer in
the formal votes (Patidar, Bhardwaj and Choudhary., 2020). And all the management decision
taken by the top tier is recorded in the corporation office hour. Moreover, all the meeting is
abiding by the legal requirement of the state where the cooperation is situated.
There are two types of corporation likewise C and S but most of the business prefer C as
it is less complicated. In C type the owner has to choose their business name that is not registered
as it is allow the organization to have different identity in the market. After the registration in the
state government association the corporation is allotted with the stock. Along, with this the one
that purchase this stock are the owner of the company. Whereas, in the S corporation name has
been driven from the tax law such as chapter 1 of the internal revenue code. Therefore, the firm
has to pay IRS form or the election by small business corporation for enrolling in S corporation.
This was introducing because government want business owner to pay many taxes such as
annual reporting fee or miscellaneous tax (Jacob., 2019.). However, the main reason for the C
corporation is converting into S so that it can save themselves from the range of tax. The legal
consequence of this type is the owner has to full fill the legal requirement of the state
government and any breach in the contract can damage the business image in the market.

Limited liability company: It is the type of ownership structure that will help protect
the right of the owner’s assets and liabilities in the loss due to fault in the business event.
Moreover, it is a new form of business that is a combination of best feature of various
organizational structure. it provides the company with the liability protection of the business and
offering tax flexibility like partnership (Business organization., 2021). However, the legal
consequence of this type is that it won’t protect the owner if acted in reckless, illegal and
fraudulent manner. Along, with this the director of the company will also be heal liable for not
describing the activities of the company before the government before commencing of business.
In addition, to this the legal form and structure of the company differ from each other likewise
each state has their own rules and regulations and that is also filed in the LLC article.
Furthermore, in this type of organization owner has to make owner agreement that include
the percentage of ownership in the firm (Minzheong, S., 2020). As well as it will also include the
rights and duties, distribution of share, voting rights and protocol related to selling the stakes of
the business. Beside this, it is a State structure and because of that there are no particular form of
the tax at the federal level that firm has to pay. Moreover, this type of organization has right to
choose the way of paying the tax such as cooperation, partnership or as a sole owner.
Recommendation
 It is to be recommended to the Sam is to adopt the partnership organization as it
will help the firm in growing their business rapidly. It will provide the Sam with
various type of partnership such as joint venture and general partnership
(Subramanian., 2017). Moreover, there will be various advantages that firm will
have likewise it will allow the company to increase the area of expertise and
enhance the knowledge of their employees. That will contribute in improving the
efficiency of the company in the market area.
 It will also bring more capital in the company that will contribute in investing in
more venture as well as it will benefit in bringing the innovative technological
tool. That will result in improving the brand image by attracting more and more
customer.

 It will also provide the firm with various business opportunity that will result in
increasing the productivity of the firm. So the competitive advantage of the firm
will improve that directly affect the growth of the business.
 Moreover, it will help Sam in sharing the burden with the other partner that will
benefit in reducing the stress of the owner. So that it can concentrate on the issues
that are arising due to internal and external factor.
CONCLUSION
From the above report it has been concluded that business organization help the company in
running the business by providing them with the structure. The present study has also
summarized about the various type of business organization such as sole proprietor, partnership
and corporation as well as limited liability company that benefits the organization in expanding
their business globally and locally. In addition to this the study has also depicted about the legal
consequence of all the type that can affect the business performance as well as individual rights.
Lastly, the report has recommended the organization in adopting partnership for enhancing the
overall performance.

REFERENCES
Books and journals
Al Mamun, C. A. and Hasan, M. N., 2017. Factors affecting employee turnover and sound
retention strategies in business organization: A conceptual view. Problems and
Perspectives in Management, (15, Iss. 1), pp.63-71.
Jacob, N. L., 2019. Supplier-User Interaction in Knowledge-Intensive Business Services: Types
of Expertise and Modes of Organization. In Services and the Knowledge-Based
Economy (pp. 146-154). Routledge.
Kasahun, A. K., 2020. The Impact of Working Capital Management on Firms’ Profitability-Case
of Selected Sole Proprietorship Manufacturing Firms in Adama City. IOSR Journal of
Economics and Finance (IOSR-JEF). 11(1). pp.45-55.
Minzheong, S., 2020. A Case Study on Partnership Types between Network Operators &
Netflix: Based on Corporate Investment Model. International Journal of Internet,
Broadcasting and Communication.12(1). pp.14-26.
Patidar, M., Bhardwaj, R. and Choudhary, S., 2020. The Study of Linear Programming Approach
for Optimal Scheduling of Work in A Corporation with Different Models. Materials
Today: Proceedings. 29. pp.661-667.
Subramanian, K. R., 2017. Employer employee relationship and impact on organization structure
and strategy. International Journal of Innovative Trends in Engineering. 43(27). pp.39-
45.
Wang, S. and Zhou, X., 2019. New insights into organization structure and business process: an
integrative point of view. Open Journal of Business and Management.7(04). p.1953.
Online
Four main types of business organization., 2021. [Online]. Available through <
https://www.fastcapital360.com/blog/types-of-business-organizations/ >.
Business organization., 2021 [Online]. Available through <
https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-Business-Organization-
Forms.aspx>.
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