Sample Essay on Forms of Business Organizations

Forms of Business Organizations

A business association or organization is an entity that is formulated to execute commercial enterprise. Various forms of a business determine income tax treatment and its legal liability.

Sole Proprietorship

This business is structured in a way that it does not need legal documents to verify how profit sharing in an entity will be allocated. In this structure, an operator does not need to differentiate himself from business if he is the sole owner. Additionally, becoming a sole proprietor does not exclude him to use an enterprise name that differs from his name. In this form of a business, profits, assets, liabilities and losses are considered the responsibility of the owner. This enterprise is not ideal for businesses that are high and risky because they subject personal assets to danger. This implies that if a business incorporates debts, the owner should opt for a legal structure that safeguards personal interests in a better way. There is also need of a business insurance policy to cater for risks and offer protection for swift operation.

The advantage of sole proprietorship as a business form is that it creates an easy platform to make decisions. It is also the easiest and less expensive to organize. However, the disadvantage of sole proprietorship is that it subjects owners to be legally responsible of the organization debts. In this form of business, it is difficult to attract workers of high caliber to be part of the association. Another disadvantage of sole proprietorship is that it is difficult to raise cash because owners are limited to use funds from consumer loans or personal savings (Becky, 2009).


This form of business association entails two or more individuals who share responsibility of a single business. In contrast to sole proprietorship, the law does not differentiate between owners and the business. It allows partners to have a legal agreement that determines decision making, profit sharing, and resolve of disputes. This contract also verifies how future partners can be part of the organization and procedure to dissolve partnership when necessary. Through the agreement, members get to know time and capital that each will contribute. The advantages of partnership are that it is easy to establish partners, which needs time to develop the agreement. Additionally, when owners are more, it is easy to raise and increase funds. In this form of business, profits flow directly via partners’ tax returns that are personal. In partnership, owners usually benefit from partners with complementary skills.

Limitations of partnership are that partners are individually and jointly liable of actions of others. Furthermore, it is mandatory to share returns with others and conflicts may arise because individuals share decisions. Another disadvantage is that gains of some workers are not deducted from tax returns or business income. At times, partnership has a limited life and ends when a partner leaves the organization or dies (Collier, 2012).


The third alternative form of a business organization is corporations. It is chartered by a state and perceived by law to be a unique entity. A corporation can be sued, taxed, or be part of contractual agreements. Shareholders are individuals who own the corporation and they choose their board of directors to be in charge of decisions and main policies. The advantage of corporation is that shareholders have limited liability to debts of organization compared to sole proprietorships. Additionally, a corporation deducts cost of benefits that it offers to employees and officers. Limitations of corporation are that they are monitored by state, local or federal agencies and need paperwork to conform to regulations.

A Business Plan

This is a proposal concerning a business organization form and requirements of the state to initiate the plan. The idea that I choose is to begin a small English school that will tutor in Saudi Arabia. The appropriate venue of this school will be at my grandfather’s home. To start this business; requirement of the state is that I abide by the law. For instance, if this business will be a sole proprietorship, there will be no need to provide legal documents to approve sharing of profit in a business (Smith, 2010). In regard to sole proprietorship, it is essential to have a business insurance policy to cater for risks and offer protection for swift operation.

Additionally, starting an English Tutoring school in Saudi Arabia requires two or more individuals to share responsibility of the organization. In this state, the law requires partners to have a legal agreement that determines decision making, profit sharing, and resolve on disputes. The Saudi Arabian law contract also verifies on how future partners can be part of the organization, and procedure to dissolve partnership when necessary. This school can also run well in a corporation form. A corporation is suitable because it incorporate shareholders who are allowed to elect directors to take control of policies and make decisions. In return, this form of a business will favor the progress of English school in Saudi Arabia.




Becky, A. (2009). Forms of Business Organizations. London: University Press.

Collier, P. M. (2012). Accounting for managers: Interpreting accounting information for decision making (4thed.). West Sussex, United Kingdom: John Wiley & Sons Ltd. ISBN13:978-1-119-97967- 8

Smith, D. (2010). Business Requirements. Chicago: University Press.