Form of Organisation and Legal Issues

Running Head: Form of Organisation and Legal Issues
Form of Organisation and Legal Issues

Form of Organisation and Legal Issues
Contents
1. What are the merits of the three major legal forms of organization?.....................................2
Ans-1......................................................................................................................................2
2. Does the concept of limited liability apply to a sole proprietorship? Why or why not?........3
Ans-2......................................................................................................................................3
3. Suppose a partnership is set up and operated without a formal partnership. What problems
might arise?................................................................................................................................3
Ans-3......................................................................................................................................3
4. How do the three major forms of organization compare in terms of management control by
the owner and sharing of the firm’s profits?..............................................................................4
Ans-4......................................................................................................................................4
5. How do advisory councils differ from boards of directors? Which would you recommend
to a small company owner?........................................................................................................4
Ans-5......................................................................................................................................5
References..................................................................................................................................6
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Form of Organisation and Legal Issues
1. What are the merits of the three major legal forms of organization?
Ans-1. There are usually three legal forms of organisations which include:
A. Advantages of Sole Proprietorship-
i. Sole proprietor maintains the 100% control and decision making authority.
ii. Owner is not required to pay corporate taxes.
iii. The legal cost of starting the business is minimal
iv. Low start-up costs
B. Advantages of Partnership-
i. Greater borrowing capacity
ii. Shared start-up costs
iii. Equally liable for all kinds of liabilities (business.tas,2017)
C. Advantages of Corporation-
i. Accumulation of capital becomes easy
ii. Liability is limited
iii. Transferable ownership(canadabusiness,2019)
2. Does the concept of limited liability apply to a sole proprietorship? Why or why not?
Ans-2. In sole proprietorship, the owner of the business manages all the transactions and
business solely. Sole proprietor is the person who is completely accountable for all sorts of
liabilities and also enjoys the complete ownership of the business and its assets.
A business with limited liability will not be accountable for any sort of financial risk arising
from the debts taken in past (bizfluent, 2019).
When we talk about the sole proprietorship, then the concept of limited liability can never be
functional. In such form of business, the owner and the business are not treated as two
separate entities. As a result, owner enjoys both the profit and ownership of assets but is also
liable for all the borrowings and losses incurred. Therefore, in sole proprietorship the concept
of unlimited liability fits the best, which says that the owner of the entity is legally
accountable for all kinds of debts and obligations. We can even say that a customer can sue
the owner of the business for the damage caused by the offered product/service; even banks
can recover the loan amount by selling the owner’s property.
3. Suppose a partnership is set up and operated without a formal partnership. What
problems might arise?
Ans-3. It is always advisable to start the partnership business with a formal partnership
agreement. Though it has not been made mandatory from the legal view point, but during
adverse and critical times of business it proves to be really helpful. It is always worthwhile to
decide upon the matters like what will be the financial contribution of each of the partners,
their share of profit, role and responsibilities, exit strategy, how the partners will be
remunerated, conflict resolution strategies etc.
In absence of answers to the above mentioned questions, the chances are:
i. The partners will face problem in decision making, if they are not clear with their
roles and responsibilities
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