Business Organization And Its Types

BUSINESS ORGANIZATION AND ITS TYPES

In economics, a Business Organization is a legally-recognized organizational entity designed to sell goods and/or services to consumers or other businesses, usually in an effort to generate profit.
The etymology of "Business" relates to the state of being busy either as an individual or society, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope — the singular usage to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the record business," or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate.

Although forms of business ownership vary by country and local government, there are several common forms of business ownership:

1. Sole Proprietorship,
2. Partnership,
3. Corporation and
4. Cooperative.
Sole Proprietorship:

The sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business entity owned and managed by one person. The sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control.
Sole proprietorships are so easy to set up and maintain that you may already own one without knowing it. For instance, if you are a freelance photographer or writer, a craftsperson who takes jobs on a contract basis, a salesperson who receives only commissions, or an independent contractor who isn't on an employer's regular payroll, you are automatically a sole proprietor.
However, even though a sole proprietorship is the simplest of business structures, you shouldn't fall asleep at the wheel. You may have to comply with local registration, business license, or permit laws to make your business legitimate. And you should look sharp when it comes to tending your business, because you are personally responsible for paying both income taxes and business debts.
A sole proprietor can be held personally liable for any business-related obligation. This means that if your business doesn't pay a supplier, defaults on a debt, or loses a lawsuit, the creditor can legally come after your house or other possessions.
Take the following example:
Lester is the owner of a small manufacturing business. When business prospects look good, he orders $50,000 worth of supplies and uses them in creating merchandise. Unfortunately, there's a sudden drop in demand for his products, and Lester can't sell the items he has produced. When the company that sold Lester the supplies demands payment, he can't pay the bill. As sole proprietor, Lester is personally liable for this business obligation. This means that the creditor can sue him and go after not only Lester's business assets, but his personal property as well. This can include his house, his car, and his personal bank account.

Some points relating Sole Proprietorship are listed below:
· Easiest type of business organization to establish. There are no formal requirements for

starting a sole proprietorship
· Decision making is in direct hands of owner.
· All profits and losses of the business are reported directly to the owner's income tax return.
· The startup costs for a sole proprietorship are minimal.
· Owner has unlimited liability. Both the business and personal assets of the sole proprietor are

subject to the claims of creditors.
· Because a sole proprietorship is not a separate legal entity, it usually terminates when the

owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity

and does not have perpetual existence like other business organizations.
· It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited

to the owner's funds and any loans outsiders are willing to provide.
· Owner could spend unlimited amount of time responding to business needs.

Some of the advantages and disadvantages regarding Sole proprietorship can be listed as:

Advantages

● Ease of formation
● Low start-up costs
● Less administrative paperwork than some other organizational structures (such as

incorporation)

● Owner in direct control of decision making
● Minimal working capital required
● Tax advantages to owner
● All profits to owner

Disadvantages

● Unlimited liability

● Difficulty raising capital

● Lack of continuity in business organization in the absence of the owner