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Finance/Accounting - Essay Example
Pages 3 (753 words)
Using the following criteria, one of these forms are the preferred ones for the reasons specified:
b. In terms of liability of the owners, the corporate form, from the…
c. In terms of continuity of business, the corporation is preferable because the investors are not part of the management, and the directors that represent them can be replaced. The death of the officers or the top or higher management people will not affect the continuity of the business. The death of the sole proprietor, on the other hand, ends the business, and the death of one of the partners can dissolve the business or cause a reorganisation.
d. Transferability of ownership. The stockholder can sell his shares, while the sole proprietor cannot transfer ownership. The partner in a partnership also cannot transfer his ownership of part of the business, unless a reorganisation is contemplated.
e. Management control and regulations. The sole proprietor enjoys full management and control of his business, while the partner in a partnership has to share the management of the enterprise with the another partner or other partners. The stockholder relinquishes control his stock ownership to a group of professional managers who may not always act in the stockholders’ best interests. The sole proprietor is practically autonomous and subject only to the regulations imposed by law and the state. The corporation formulates and imposes its own rules and regulations to be followed by all officers and employees which are necessary for the efficient functioning of the enterprise.
f. Ability to raise capital. The corporation can raise capital more easily than the other two forms because it can conduct a public offering, while the sole proprietor has to rely on his own personal reputation and creditworthiness, and the partnership has to depend on the creditworthiness of either or both or all of the partners.
g. Income taxes. Both the sole proprietor and the partners are taxed only once and their tax rates are lower than the corporate income tax rates. The corporation is also taxed twice - as a corporate entity and when the ...