Essay Question:

Please answer the questions briefly.

1. Discuss the several forms of business organizations and its advantages and
disadvantages?
Ans.

The Sole Proprietorship

Single, small business owners often choose this type of business organization. It is not a
legal entity separate from the business owner. In most cases, it is a fictitious name that
someone does business under, such as Tim’s Plumbing Service. The name is just a trade
name instead of a legal entity.
❖ Advantages of a sole proprietorship include:

• Easiest, simplest, and least costly business entity to form and operate.
• Complete control and flexibility.
• You can register your name, obtain a business license, and begin conducting business.
• The business does not pay separate taxes. All income passes directly to the owner
and is taxed at the owner’s personal tax rate.

❖ Disadvantages of a sole proprietorship include:

• The main disadvantage of a sole proprietorship is that the owner has unlimited
personal liability for all business debt. If the business is sued, the owner is personally
liable. Therefore, the owner’s personal assets could be in jeopardy. Another
disadvantage is that when the owner dies, the business terminates or becomes
defunct.

A Partnership
A partnership is a separate legal entity created by two or more individuals who engage in
business for profit. Partnerships are not difficult to set up and operate, but to protect each
partner, a comprehensive partnership agreement should define each person’s interest,
liability, and role within the partnership.

❖ Advantages of a partnership include:

• Limited partnerships and limited liability partnerships offer some degree of liability
protection for partners.
• Partnerships are easy to maintain because they do not require annual meetings or
minutes of meetings.
• Partnerships do not pay corporate taxes. The profits and losses pass through the
business to each partner, according to the partner’s interest in the business.
 • Can be used by professionals who may not be able to create an LLC.

❖ Disadvantages of a partnership include:

• Individual partners may bear the liability for the actions of other partners.
• Partners may have unlimited personal liability for debts and losses, except in the case
of limited liability partnerships and limited partnerships.
• If a partnership is created without a written agreement or a partnership agreement is
poorly drafted, there could be significant disputes that may lead to costly litigation.

The Limited Liability Company

A limited liability company (LLC) is a legal business entity that is separate and apart from its
owners (members). LLCs combine some of the best advantages of a partnership with the
advantages of a corporation. Each state passes laws that govern the creation and operation
of an LLC.

❖ Advantages of an LLC include:

• LLCs may choose to be taxed as a sole proprietorship (pass-through entity) or a

partnership.
• Owners have limited liability. They are not liable for the company’s obligations or debts.
• LLCs are relatively easy to set up through the state’s Secretary of State’s Office.
Members are not required to conduct annual meetings and have very few ongoing
formalities or corporate filings with the state.
• LLCs offer a great deal of flexibility in how the LLC is managed.
• LLCs can be converted to a corporation if the company outgrows the limitations of an
LLC.
• You may create a single-member LLC or create an LLC with multiple members.

❖ Disadvantages of an LLC include:

• LLCs are typically not suitable for companies that want to seek venture capital or
pursue an initial public offering in the future.
• Some professional groups may not be permitted to operate an LLC.
• Transferring an interest or accepting new members can be difficult, depending on the
terms of the operating agreement.
• Members may be held liable for company obligations in some cases.

The Corporation
A corporation is the most formal business entity. It is a legal entity that is separate from its
owners (shareholders). In the eyes of the law, a corporation is a legal person. The
shareholders elect a Board of Directors to operate the corporation. The directors, in turn,
appoint officers to manage the day-to-day operations and make high-level decisions for the
company.

❖ Advantages of a corporation include:

• Corporations have an unlimited life span. Shares may be transferred, purchased, and
sold.
 • Owners are protected from personal liability for the company’s obligations and debts.
• Corporations have several options for raising capital.
• Corporations are the preferred business entity for public companies.

❖ Disadvantages of a corporation include:

• Corporations are subject to double taxation. A corporation must file a corporate tax
return and pay taxes based on its profits based on the corporate tax rate. Distributions
to shareholders are taxed at the shareholder’s personal tax rate.
• Setting up and managing a corporation is more difficult and expensive. Corporations
require annual meetings, minutes of meetings, and other formalities.
• The periodic filings and annual fees for corporations can be burdensome and costly
for some businesses.
• Much less flexibility because of regulations governing corporations.

2. Enumerate the types of cooperatives.

Ans.
Consumer Cooperatives
Consumer cooperatives are owned by members who use the co-op to purchase the goods or
services that they need. By combining member demand, the co-op can provide better
availability, selection, pricing, or delivery of products or services to individual consumers. The
model is used in many sectors and includes credit unions, grocery co-ops, telephone, and
electrical distribution, housing, and childcare.

Worker Cooperatives
Worker cooperatives are businesses that are owned by their workers. Ownership allows the
worker-members to control the operations and strategic direction of the business and to
directly benefit from the business’s success. Profit distribution to worker-owners is based on
some combination of job position, hours worked, seniority, and salary. Worker cooperatives
are found in a wide variety of industries.

Producer Cooperatives
Producer cooperatives are owned by people who produce similar types of goods or services.
The members use the cooperative to more effectively negotiate prices and access larger
markets. The cooperative can further process member products to add value and increase
producer returns. Some producer cooperatives also pool member demand for production
inputs to obtain better pricing for those inputs. Many agricultural cooperatives provide both
types of services to their members.

Purchasing or Shared Services Cooperatives

Purchasing cooperatives combine member demand to achieve better pricing, availability, and
delivery of products or services. The members of purchasing cooperatives are businesses or
organizations, rather than individual consumers, that use the cooperative to more efficiently
manage their operations. Purchasing co-ops are used by hospitals, independent retail stores,
farm supply cooperatives, and educational institutions for cost-effective wholesale purchases.

Multi-stakeholder Cooperatives
Also referred to as hybrid or solidarity model cooperatives, multi-stakeholder cooperatives are
owned by two or more types of members who have different roles and interests in an enterprise
that more broadly benefits them all. Member classes may include consumers (either
individuals or businesses), producers, workers, or investors.
3. Explain the difference between a leader and a manager.
Ans.
In an organizational setup, a manager is an important link between the firm and its
stakeholders, i.e. employees, customers, suppliers, shareholders, government, society, and
so forth. He is the one who performs basic managerial functions.

Conversely, a leader is one who inspires, encourages, and influences his men, to work
willingly, in the attainment of the organization’s objectives. The two are not one and the same
thing, however, one can only become a successful manager, when he/she is an effective
leader.

In this context, what you need to know is that Leadership is a skill, and the person who
possesses this ability is known as a Leader. On the other hand, Management is a discipline,
and the practitioner of this discipline is known as the Manager.

4. Identify the three (3) C’s of an effective leader.

Ans.
1. Character. In order to effectively lead others, people must respect you.
Respect is based not just on what you say but on who you are. Employees in
a smaller medium-sized businesses get to see you up close and personal and
evaluate you based on their interactions with you.

2. Competence. You should be able to perform any function that you are asking
others under you to perform. Otherwise, how will you know if they are doing it
right? How will you train new employees on the task if you cannot perform it
yourself? Anyone you want to promote needs to be able to do the same over
their new proposed area of management.

3. Communication. Your employees need to know what’s going on.

Communicate with your employees the “why” of what they are doing, not just
the “what.” Don’t be like the parent who says, “because I say so” when asked
“why” by your employees. Usually, there are legitimate reasons that you can
articulate. Don’t use information (or the lack of it) as a weapon. Your employees
usually want to do their best for you. Be transparent about what’s going on
when you can (or some version of it that can be explained) so employees
understand the “why.” The results are much better.