1.2 Forms of business organization

The first thing to decide, when entrepreneur wants to start his business is, which business form or organisational structure to operate, therefore Peter must be very careful in choosing business form. If Peter wants to build a successful business, it is important to know how each business form operates such as sole proprietorship, partnership, corporation, and cooperative. Each business form can be affected by personal concerns, financial concerns, legal issues, and tax issues.

1.2.1 Sole proprietorship

Definition of sole proprietorship is an unincorporated business owned by one person. Owner can hire employees or operate his business directly, and only sole proprietor decisions can determine future business’ destiny. The most important operations are managed by proprietor and sole proprietor is performing major business functions such as overall manager, sales manager and financial manager. Business owner is only one, so there is no need in any formalities and agreements.

Today’s proprietors do their business depending on other businesses. Specialization created high interdependent business community between different business entities. Furniture maker may be sole proprietor, but he or she cannot survive in a market without million of workers in other industries and organisations, that produce equipment and materials needed for furniture maker’s business.

Benefits

Simplicity-Becoming sole proprietor is simple, because not so many legal actions and formalities are required, that is why a large number of entrepreneurs are sole proprietors.

Autonomy- is another good reason, why people becoming sole proprietors. There is freedom of action, it means no boss to criticize proprietor’s work, no partners, with whom proprietor must consult at first, no board of directors who second-guess the sole proprietor decisions and provide a wrong policy among workers.

Sole gain-relatively fact that sole proprietor gain all profit. There are no partners to share the proceeds, and no shareholders to claim dividends.

Disadvantages

In other side sole proprietorship also has few disadvantages. These disadvantages come from sole operating, which is the main feature of sole proprietorship.

Limited recourses-sole proprietor has limited resources to be productive, and limitations come from the owner’s personal financial resources and his or her ability to borrow money. Sole proprietors are also limited in terms of personal ability to manage and do business. To run business successfully, sole proprietor business must be resourceful, initiative, and owner’s ability to manage. If proprietor is good manager, business can collapse any time when proprietor is sick or disabled.

Unlimited liability-if sole proprietors business is failure, creditors will come after personal assets and business assets, because no difference between personal and business assets. If person dies or become disabled, creditors require sole proprietor family to pay, the family financially will be wiped out.

Business dies with sole proprietor-means that without planning business dies, when sole proprietor dies. It means that families source of income is cut off.