1.
1
Forms of Business
Organization
Main Points:
1. Sole Proprietorships
1) Advantages of Sole Proprietorships
2) Limitations of Sole Proprietorships
2. Partnerships
1) Advantages of Partnerships
2) Limitations of Partnerships
3. Corporations
1) Advantages of Corporations
2) Limitations of Corporations

2.
2
Revision (1)
1. What is bookkeeping?
-- a process of accounting, the means of recording
transactions and bookkeeping records.
2. What is accounting?
1) (AICPA) the art of recording, classifying, and summarizing
in a significant manner and in terms of money, transactions
and events, and interpreting the results thereof.
2) (Modern Definition) an information system that measures,
processes, and communicates financial information about
an identifiable economic entity.
3) (Encyclopedia) the process of maintaining, auditing, and
processing financial information for business purposes.

3.
3
Revision (2)
3. Who are the users of accounting information with
direct financial interest?
-- present and potential investors; present and
potential creditors; management.
4. Who are the users of accounting information with
indirect financial interest?
1) tax authorities
2) other groups
-- financial analysts and advisers, brokers,
lawyers, economists, and the financial press;
-- customers and the general public.

4.
4
Presentation
Accountants need to understand the
three basic forms of business organization:
sole proprietorships, partnerships, and
corporations. Accountants should recognize
each form as an economic unit separate
from its owners, although legally only the
corporation is considered separate from its
owners.

5.
5
In-class Activities (3-2)
Advantages:
1. Sole proprietorships
1) simplicity and flexibility;
2) unrestricted involvement of family members.
2. Partnerships
1) ease of assembling enough financial and
physical resources; 2) greater borrowing
capacity than the total borrowing capacity of the
partners as individuals; 3) relatively unlimited
involvement of family members;
4) simple record-keeping and income tax filing
requirements.

6.
6
In-class Activities (3-2)
Advantages:
3. Corporations
1) continuous existence;
2) ease of transferring ownership;
3) less risk of unrecognized equity liquidation;
4) separate legal entity;
5) limited liability of stockholders;
6) ease of raising capital;
7) lack of mutual agency;
8) centralized authority and responsibility;
9) professional management.

7.
7
In-class Activities (3-3)
Disadvantages:
1. Sole proprietorships
1) permanent risks in both personal and business activities;
2) severely restricted credit availability and business
opportunities; 3) difficulty in measuring financial
performance and profitability.
2. Partnerships
1) essential description of the method of distributing
profits and losses; 2) unlimited liability;
3) lack of understanding the financial position of the
partnership; 4) limited life;
5) unequal treatment to minority partners.

8.
8
In-class Activities (3-3)
Disadvantages:
3. Corporations
1) more time and money needed for incorporation;
2) negative influence of the requisition of personal
guarantees on the limitation of liability;
3) obstruction in decision making caused by conflicts
and disagreements among stockholders;
4) difficulty of recovering the value of the investment
for minority stockholders;
5) more paperwork to prepare;
6) taxed twice income.