The World Of Finance

The three major traditional forms of business organization are 1) sole proprietorship 2) partnership and 3) corporations. Sole proprietorship is the simplest form of business and the owner is the business. Some advantages of sole proprietorship are the proprietor takes all the profits, fewer legal forms are involved which makes it easier to start than other kinds of businesses, more flexibility because the proprietor can make all the decisions freely, and only personal income tax on profits are paid by the owner. There are also disadvantages to sole proprietorship. Some disadvantages are that the proprietor is liable for all debts, opportunities to raise capital are limited, and when the owner dies the business dissolves.

When there is an agreement between two or more persons to carry on a business for profit it creates a partnership. Some advantages of a partnership are enhanced borrowing power because there are more owners, income is included and taxed on partner's personal tax return, and they can raise more funds than a sole proprietorship can. There are also disadvantages to partnership which are unlimited liability because one owner may have to cover debts of other owners, partnership is difficult to liquidate or transfer, and when one partner dies the partnership dissolves.

Corporations are owned by stockholders, a board of directors, and officers. Some advantages of corporations are the owner's liability is limited to their investments and by selling shares of stock they can raise capital. Here too there are disadvantages to corporations. Some disadvantages are double taxation, specific statutory procedures must be met which means that they are subject to more governmental supervision and reporting requirements, and credit limitations because of the limited liability they have.

The goal of the financial manager in a corporation is to maximize the wealth of its stockholders. They do this