BUSINESS ETHICS POINTERS TO REVIEW

Forms of Business Organizations

1. Sole Proprietorship- It is a one-person business. The owner has full control over
the finances and operations and decide alone.
Advantages:
a. Tax preparation is faster. Simply file an individual income tax return including
losses and profits to your business. Your personal and business income is
considered the same and the tax implications for self-employed individuals
would apply.
b. Sole proprietorship has lower start-up costs.
c. Handling money for the business is easier.
d. Sole proprietorships have the least government rules and regulations that
affect them.
e. The sole proprietor can own the business for as long as he/she wants, and
when he/she wants to move out, he/she can cash in and sell the business.
f. Even in common practice, the sole proprietor can pass the business down to
his/her heir.
Disadvantages:
a. The sole proprietor is personally liable for all debts and actions of the
enterprise.
b. There is lack of financial control because of looser structure of sole
proprietorship.
c. There could be difficulty in raising capital.
2. Partnership- It is a business relationship between two or more people. It refers to
an arrangement where individuals share a business venture's profits and
liabilities. The partners give feedback on how to use the capital and other critical
strategic decisions that may provide different perspectives.
Advantages:
a. Partnership business lacks formality as compared with managing a limited
company or corporation.
b. It is easy to start. The partnership may be created either verbally or in writing.
c. You share the burden. You have companion and support.
d. Every partner would add his/her own expertise, skills, experience, and
connections to the business, thus giving it a greater chance of success.
e. There is better decision-making. Two heads are better than one.
f. There is privacy. The business deals may be kept confidential by the partners.
g. The partners own and control the business.
h. The more partners there are, the more funds are available in the company,
which can be used for possible expansion. Its borrowing capacity is also likely
to be higher.
i. There is an easy access to profits in a business partnership. The partners just
have to divide the profits.
Disadvantages:
a. The business does not have any independent legal status.
b. The business has no separate legal personality, so the partners are personally
liable for the debts and losses incurred.
c. The partnership business often seems to lack the sense of prestige more
closely associated with a corporation.
d. A partnership will often find it more difficult to raise money than a corporation.
e. There is a potential of differences and conflicts.
f. Decision-making can be slower because there is a need for consultation
among partners.
g. The profit must be shared among the partners.
h. It may require a lot of time and energy thus may affect life-work balance.
i. The profits earned by the partnership will be translated to income on the
individual partners. Thus, they are subject to income tax in the financial year
in which they are made.
j. There are limits on business development like unlimited liability, lack of
funding opportunities, and a lack of commercial status, etc.
3. Corporation. It is an entity created by law that is independent and distinct
from its owners and relies on the corporate laws of the state in which it is
incorporated to continue its existence. Corporations have an advantage in
generating money for the company. It can raise funds by selling shares of
stocks. It files taxes separately from its owners.
Advantages:
a. The liability of the shareholders of a corporation is limited up to the amount
of their investments.
b. A publicly held corporation may sell shares or issue bonds to raise substantial
amounts.
c. It is easy for a shareholder to sell shares in a corporation.
d. A corporation’s life has no limit, ownership can pass through many
generations.
Disadvantages:
a. The corporation pays taxes on its income depending on its type and the
shareholders pay dividend taxes, so income gets taxed twice.
b. The management team of a corporation can operate the business without any
real oversight from the owners.

*FOR TEST III BRING YOUR OWN PENCIL, ERASER AND SHARPENER *COLORING
PEN (OPTIONAL)