Business organizations can be classified in a variety of ways depending on its size, sector, legal status etc.

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Business organizations can be classified in a variety of ways depending on its size, sector, legal status etc. These classifications differ from one firm from another. Legal status has an important bearing on the environment in which the business operates. It is important to have a comprehensive knowledge of the advantages and disadvantages of the several legal forms so that managers and directors can decide which legal form their firm should adopt.

The sole trader is the simplest business to develop and has very little legal formalities, obligations or constraints. A sole trader or sole proprietor is one who individually runs business with personal funds. Remaining as a sole trader has many advantages, mainly being that you are able to give a more personal service to your customers and you are able to make changes within your business very quickly due to there is little or no bureaucracy there being only one person to make the final decision. Other advantages include having complete control over the business and its profits. However, as the expansion of the business depends on the amount of capital you are personally able to inject, one may find investing in the growth of my business very difficult, as capital is often difficult to find. Thus competitors have greater access to investment and are able to adapt more quickly to market demands.    A sole trader is also fully liable financially and thus losses may lead to bankruptcy or loss of personal possessions.

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A partnership is an unincorporated business that is carried on by two or more people who intend to share the business profits. There are two main advantages to forming a partnership. First, a partnership allows two or more people to work together and bring different skills and resources to the business. Second, if the partnership suffers a loss but the partners have other employment income, the loss can be used to reduce their taxable income, thereby lowering the income tax payable by the partner. There are also two main disadvantages to forming a partnership. Firstly, because a partnership is based ...

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