2. The three primary forms of business are sole proprietorships, partnerships, a

Question

2. The three primary forms of business are sole proprietorships, partnerships, and corporations. You are contemplating starting a business. For each of the following proposals, explain which of the three types of businesses would be most appropriate. In each case describe the advantages and disadvantages of your choice. (a) You are a music lover and are disgusted with the selection of compact discs available at the stores near your college. So, you decide to open up a store selling new and used compact discs. (b) After a late night cram session, you and your roommate are in need of some pizza, but no restaurants are open. You decide to open an all night pizza parlor. (c) You have an idea that will make you a billionaire before you graduate from college: a pizza delivery service - from any restaurant to any dorm. In order to make your revenue goal a reality, a local venture capital firm has informed you that you will need to nationally franchise your operation.

Explanation / Answer

a) Sole proprietorship would be most appropriate. A sole proprietorship firm is a business owned by a single person. This is the simplest form of business, subject to minimal regulation.The disadvantage of sole proprietorship is that the owners assumes all the liability and there is no distinction between personal debt and business debt.

b) Partnership would be most appropriate. A partnership firm is a business owned by two or more persons. It may be viewed as an extension of sole proprietorship . The partners bear the risk and reap the rewards of the business.The major disadvantage of partership firm is that the life of the organization is limited.

c) Corporation would be most appropriate. A corporation is a business collectively owned by the shareholders who entrust the task of management to their elected representatives called the directors. The benefit of corporation is that the owners bear limited liabiltiy . The major disadvantage is that it is complex to setup and highly regulated by the government.

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