FOB TASK 2

Yasser bin Bassam (012018022148)

Sole Proprietorship

A sole proprietorship is a type of enterprise that is owned and run by one person and
in which there is no legal distinction between the owner and the business entity.
Unlike the partnerships or corporations, a sole proprietorship does not create a
separate legal entity from the owner. In other words, the identity of the owner or the
sole proprietor coincides with the business entity. Because of this fact, the owner of
the entity is fully liable for any and all the liabilities incurred by the business.

 Advantages

I. Easy and inexpensive process

The establishment of a sole proprietorship is generally an easy and inexpensive
process. Certainly, the process varies depending on the country, state, or province of
residence. However, in all cases, the process requires minimum or no fees, as well
as very little paperwork.

II. Few government regulations

Sole proprietorships adhere to a few regulatory requirements. Unlike corporations,
the entities do not need to spend time and resources on various government
requirements such as financial information reporting to the general public.

III. Tax advantages

Unlike the shareholders of corporations, the owner of a sole proprietorship is taxed
only once. The sole proprietor pays only the personal income tax on the profits
earned by the entity. The entity itself does not have to pay income tax.
 Disadvantages

I. Unlimited liability of the owner

Since a sole proprietorship does not create a separate legal entity, the business
owner faces unlimited personal liability for all debts incurred by the entity. In other
words, if a business cannot meet its financial obligations, creditors can seek
repayment from the entity’s owner, who must use his or her personal assets to repay
outstanding debts or other financial obligations.

II. Limitations on capital raising

Unlike partnerships and corporations, sole proprietorships generally enjoy fewer
options to raise capital. For example, the owner cannot sell an equity stake to obtain
new funds. In addition, the ability to obtain loans depends on the owner’s personal
credit history.
Partnership

A partnership is a form of business where two or more people share ownership, as

well as the responsibility for managing the company and the income or losses the
business generates. That income is paid to partners, who then claim it on their
personal tax returns – the business is not taxed separately, as corporations are, on
its profits or losses. There are three types of partnerships such as general
partnership, limited partnership and joint venture.

 Advantages

I. Fairly easy to set up and maintain over time

II. Partners can pool their resources to fund the company’s start-up
III. Partners can share the workload and the rewards of the business’s success
IV. Being able to offer key employees the potential to one day become a partner in
the business can be a big carrot that encourages them to stay long-term

 Disadvantages

I. Where more than one owner exists, there are bound to be differences of opinion
that could threaten the business
II. Although partners split any profits the business generates, if the payout is not in
sync with each partner’s contribution to the company, disagreements can erupt
III. Unlike corporations, which help to shield owners from liability, partnerships have
both joint and individual liability. That is, all partners are liable for their own
actions on behalf of the company as well as the actions of the other partners.
Cooperative

A co-operative is a member-owned business structure with at least five members, all

of whom have equal voting rights regardless of their level of involvement or
investment. All members are expected to help run the cooperative. A co-operative is
a separate legal entity and members, directors, managers and employees are not
liable for any debts incurred unless they are the result of recklessness, negligence or
fraud.
A co-operative usually only allows a limited distribution of profits to members (some
don’t allow any). This business structure encourages a democratic style of
management and promotes the concepts of sharing resources and delegation to
increase competitiveness.

 Advantages

I. Generally inexpensive to register.

II. All members must be active in the co-operative.
III. Members have an equal vote at general meetings regardless of their level of
investment or involvement.
IV. Other than directors, members can be aged under 18 years. These members
cannot stand for office and don’t have voting rights.

 Disadvantages

I. As co-operatives are formed to provide a service to members rather than a

return on investment, it may be difficult to attract potential members seeking a
financial return.
II. There is usually limited distribution of profits to members and some co-
operatives may prohibit the distribution of any surplus.
III. Members providing greater involvement or investment than others will still only
get one vote.
IV. Requires ongoing education programs for members.