This document discusses different forms of business organizations including sole proprietorships, partnerships, and corporations. Sole proprietorships are owned by one person, partnerships are owned by two or more people, and corporations are separate legal entities with transferable shares of stock. The document outlines advantages and disadvantages of each structure and provides an example of double taxation that can occur with corporations.

1. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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FORMS OF BUSINESS ORGANIZATIONS
 Sole Proprietorship
 Partnership
 Corporation

2. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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SOLE PROPRIETORSHIP & PARTNERSHIP
A business owned by one person is called a ‘Sole
Proprietorship’.
A business owned by two or more persons is called a
‘Partnership’.
Owners of a partnership are called co-owners or
partners.

3. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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SOLE PROPRIETORSHIP & PARTNERSHIP
Proprietorships and Partnerships are business
organizations that do not have legal identities
distinct from their owners.
For most proprietorships and partnerships, owners
also manage the business.
The amount of a proprietor’s personal wealth and his
or her ability to borrow limit the size of a
proprietorship.

4. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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SOLE PROPRIETORSHIP & PARTNERSHIP
The profit of most proprietorships and partnerships
is not taxed.
The profit is income for the owners who pay income
taxes on the profit as part of their personal income
taxes.

5. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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SOLE PROPRIETORSHIP & PARTNERSHIP
ADVANTAGES
Easy to form
Inexpensive to form
Few government regulations
No corporate income taxes

6. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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SOLE PROPRIETORSHIP & PARTNERSHIP
DISADVANTAGES
Limited life of business
Difficult to obtain large sum of capital
Unlimited personal liability

7. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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CORPORATION
A business organized as a separate legal entity and
with ownership divided into transferable shares of
capital stock is called a ‘Corporation’.
A corporation is separate from its owners and
managers. Here, owners are not personally liable.

8. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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CORPORATION
ADVANTAGES
Unlimited life
Professional management
Easy transferability of ownership interest
Limited liability
Comparatively easy to raise large amounts of capital

9. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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CORPORATION
DISADVANTAGES
Time consuming
Heavy taxation
High cost of formation
Subject to greater government regulations
Double taxation --- Corporate tax & Individual
income tax

10. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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Sole Proprietorships
Corporations
Partnerships
Limited Liability
Corporate tax on profits +
Personal tax on dividends
Unlimited Liability
Personal tax on profits

11. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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DOUBLE TAXATION -- Example
Earnings Before Income and Tax (EBIT) 10m
Less: Interest Expense (1m)
Earnings Before Tax (EBT) 9m
Less: Tax @ 40% (3.6m)
Earnings After Tax (EAT) or Net Income available to common
stockholders 5.4m

12. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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DOUBLE TAXATION -- Example
It is assumed that company’s:
Dividend Payout Ratio = 50%
Retained Earnings Ratio = 50%
Outstanding Common Stock = 1m

13. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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DOUBLE TAXATION -- Example
• EPS = Net Income available to common stock
holders/Outstanding common stock
= $5.4m/1m
= $5.4
• DPS = EPS x Dividend Payout Ratio
= $5.4 x 50%
= $2.7

14. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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DOUBLE TAXATION-- Example
It is assumed that Mr. X owns 100,000 shares of this company;
• Dividend Income = $2.7 x 100,000 shares = $270,000
• If Personal Income Tax = 10%, then
Mr. X’s personal income = 270,000 – 10% of 270,000
= 270,000 – 27,000
= $243,000

15. PREPARED & PRESENTED BY:
ALI RASHID CHEEMA
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FORMS OF BUSINESS ORGANIZATIONS
In terms of numbers, 73% of businesses are operated
as sole proprietorships, 6% as partnerships and 21%
as corporations.
In terms of dollar value of sales, 91% of all business is
conducted by corporations, 5% by sole
proprietorships and 4% by partnerships.