Types of Business Organizations
Business organizations are classified based on various criteria, the most common one being ownership. There are three types of business organizations based on ownership. These are sole proprietorships, partnerships, and corporations (Titman, Martin, & Keown, 2010). Sole proprietorships have one owner while partnerships and corporations have two or more owners (Perez, 2007).
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Sole proprietorships can be formed and dissolved easily and at a relatively low cost (Perez, 2007). The proprietor also takes home all the profit and does not have to consult anyone when making decisions. Income is taxed on the individual only. The major disadvantages are exposure to liability due to lack of separate legal identity of the business from the owner and the probability of failure of the business in case of the demise or incapacity of the proprietor (Titman, Martin, & Keown, 2010).
Partnerships are easier to start than corporations. They also allow for the pooling of resources from the partners. Taxation of income is also done only on the partners. The major demerit of partnerships is that they expose individual partners to liability on the acts of their fellow partners that bind the partnership to a contract (Perez, 2007).
Corporations are legally separate from their owners. This shields member from liability beyond their shareholding. They also have easier transferability of shares and perpetual existence. Disadvantages of corporations include high regulation and taxation on both corporate income and dividends (Titman, Martin, & Keown, 2010).
The Finance Manager
The Finance Manager sometimes referred to as the Chief Finance Officer, is a person appointed or selected to manage an entity’s financial affairs. His specific duties include overseeing financial planning, planning the corporate strategy, and controlling the entity’s cash flow (Titman, Martin, & Keown, 2010). He is selected to carry out these duties on behalf of shareholders as their agent (Olson, n.d).
The overall goal of a financial manager is to carry out his or her financial duties with the aim of maximizing shareholders’ wealth as measured by the firm’s value through share prices (Titman, Martin, & Keown, 2010). His duties must also be in line with the entity’s mission. This goal is realistic because a finance manager is employed to work on behalf of the shareholders in an agency relationship where he is the agent and the shareholders are the principals (Olson, n.d). This means that a finance manager’s duties must be carried out in the best interest of the principals.
Olson, K. (n.d). Legal Business Organizations. Web.
Perez, L. J. (2007). Types of Business Organizations. Web.
Titman, S. J., Martin, J. D., & Keown, A. J. (2010). Financial Management: Principles and Applications, 11th Ed. Upper Saddle River, New Jersey: Prentice Hall.