financial_full - Financial ManagementPage 1 Question 1...

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Financial Management—Page 1 Question 1 . State the advantages and disadvantages of various forms in which the business can be carried out. Answer . Forms of Business Organization A business entity may be organized in various forms. The principal forms of business organization are – sole proprietorship concern, partners in form, private company and public company. The pros and cons of these organizational forms are discussed in the following paragraphs:- Sole Proprietorship A sole proprietorship concern is a business owned by a single person. From a legal point of view, the proprietorship concern has no separate status apart from its owner. The proprietor enjoys the rewards and assumes the risks of running the business. Advantages 1. It can be set up easily and inexpensively, as there is formal requirement for incorporation. 2. It is subject to few governmental regulations. 3. There is no firm tax. Disadvantages 1. The life of the proprietorship concern is limited to the life of the owner. 2. The personal liability of the owner is unlimited. 3. The ability of the firm to raise funds is severely constrained. This limits its growth. Partnership A partnership firm is a business owned by two or more person. It may be viewed as an extension of the sole proprietorship firm. The partners bear the risks and reap the rewards of the business. Advantages: 1. It can be like a proprietorship concern, set up with relative ease and economy. 2. It is relatively free from governmental regulations. 3. It can benefit from the varied experience and expertise of the partners. Disadvantages 1. The life of a partnership is rather limited. Withdrawn or death of any of the partners may result in the dissolution of the partnership firm. 2. Possible conflict among the partners is a potential threat to the business. 3. The personal liability of the partners is unlimited. 4. While the partnership firm can raise more funds than a proprietor concern, its ability to raise funds is also limited.
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Financial Management—Page 2 Private Company A private company (a term used for Private Limited Companies) is a corporate body which: Limits the number of its members to 50. Does not invite the public to subscribe to its capital. Restricts the member's right to transfer shares. Advantages 1. The liability of the shareholders is limited. 2. Under the companies act the regulation and control of private companies is not very extensive. 3. The promoters, by being selective in choosing the members, can hope to enjoy unchallenged control over the firm. Disadvantages 1. The burden of taxation is rather high. First, the tax rate on the company's income is very high. Secondly, the dividend declared by the firm is subject to further taxation in the hands of the members. 2.
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This note was uploaded on 06/12/2011 for the course FINANCE PGP0810 taught by Professor Rc during the Spring '10 term at Symbiosis International University.

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financial_full - Financial ManagementPage 1 Question 1...

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