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A partnership is a business organization that is owned by two or more persons. Partnerships offer certain advantages over sole proprietorships:
- partners bring additional funds to a proprietorship,
- partners can bring fresh ideas and talents to business organizations,
- like the sole proprietorship, partnerships are relatively easy to form and are not subject to special taxation.
There are the following disadvantages:
-in many cases each of the partners is subject to unlimited liability. Partners are individually responsible for all the debts of the business. In other words, if the business were to fail, its creditors would have the right to recover their money from any, or all of the partners,
-the amount of capital that a partner can raise is limited. Exactly what that limit is will depend on the earnings of the business, the wealth of the partners and their ability to borrow;
- partners may disagree, causing management conflicts that could threaten the firm's existence.
A corporation is a business organization created under a government charter. Ownership of a corporation is represented by shares of stock and for that reason corporate owners are known as stockhokders.
Although corporations are outnumbered by about four to one by sole proprietorships, they dominate American business. Corporations are so important because of the advantages they offer over sole proprietorships and partnerships:
- limited liability. Unlike the owners of proprietorships and partnerships, who can be held personally liable for their debts, the most that corporate shareholders can lose (their liability) is limited to whatever they paid for their shares of stock (Ltd);
- ease of transfer. Stockholders can enter or leave a corporation at will simply by buying or selling shares of stock in that corporation;
-unlimited life .When the corporate stockholders die, their shares of stock are passed on to their heirs.
- tax advantages. In certain instances individuals can reduce their tax liability by incorporating.
Disadvantages of the corporation are:
- it is difficult and expensive to organize a corporation,
- corporations are subject for special taxes,
- corporations whose stock shares are sold to the public give up their privacy The law requires that these large, open (or public) corporations disclose information about their finances and operations to anyone interested in reading about them.