Introduction to Accounting Part 1: Basics of Finan

Financial
Statements
Legal Forms of Business Organization

We have seen the three legal forms of business organizations. These are sole proprietorship,
partnership, and limited company. What do you think are the advantages or disadvantages of
feature of these forms?

Student 1: I would like to go with sole proprietorship

proprietorship because in that way I will have the more
autonomy and authority so that I can take more decision, more free decision for my company.

Student 2: But in sole proprietorship form, there is also scope for unlimited liability. Suppose, if the
businesss does not run well. He has the responsibility to take care of all the debts from his personal
assets as well.

Student 3: I would rather prefer partnership because what I think is the burdens and risks will be
shared among the partners and also there will
will be a different view for this particular services or
operations we are performing. What I would think is if Im good at financial accounting and bad at
sales, we would be complementing each other in the services we are going to perform in the
company. So, I would rather prefer partnership over sole proprietorship.

Student 4: So, I would rather open a limited liability company. Primarily, because it's actually just
defined as a company and the number of stakeholders is large, and the responsibilities are
distributed, and the challenge is extremely high so as to balance the operations between all the
stakeholders and their wishes and what is to be done as a unit. So, the whole process becomes much
more engaging, it becomes much more challenging for the entire
enti group.

Student 5: One thing for the partnership, as he said, the responsibilities will be divided among two
people or more people. There's again a problem that might come between the difference of
opinions in partnership and you might not be able to runrun the company with similar freedom that you
will have in a sole proprietorship. And in terms of limited liability companies again, there could be a
private limited company or a public limited company. I'd probably start off with it as a sole
proprietorship.
p. Make the business large enough to go public because I alone cannot put in all the
funds that would be needed. I would need funds from public. And to get that capital, I would like to
make my company a public limited liability company.

Student1: So, we can consider the size of the company also. If it is very small, we can go for the sole
proprietorship. As it is growing, we can go for the partnership and if it is very much stable, we can go
for the limited liability companies.

Student4: Even in a limited

ed liability company, one of the most difficult things is actually going public.
So, you're allowing the general public to become part of your company or to purchase portions of
your company effectively. So, the responsibility on you and the entire operating
operating team becomes
much higher. And, the amount of financial accounting rigor required increases exponentially.

All Rights Reserved. This document has been authored by Prof. R. Narayanaswamy and is permitted for use only within the course
"Introduction to Accounting -Part
Part I: Basics of Financial Statements" delivered in the online course format by IIM Bangalore. No part of this
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