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Forms of business organizations

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Forms of business organizations

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Forms of business organizations

  1. 1. FORMS OFFORMS OF BUSINESSBUSINESS ORGANIZATIONORGANIZATION
  2. 2. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION Introduction and Understanding ofIntroduction and Understanding of Three Principal Forms of BusinessThree Principal Forms of Business OrganizationOrganization Essential Attributes andEssential Attributes and CharacteristicsCharacteristics Analyzing Business Needs andAnalyzing Business Needs and Selecting Appropriate BusinessSelecting Appropriate Business FormForm
  3. 3. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION Organizational Forms determined byOrganizational Forms determined by  Owner’s Objectives: Liability, ProfitOwner’s Objectives: Liability, Profit Distribution, Taxation and Capital StructureDistribution, Taxation and Capital Structure  Dealings with Outside World: Other Owners,Dealings with Outside World: Other Owners, Heirs, Employees, Customers and FutureHeirs, Employees, Customers and Future Owners of BusinessOwners of Business  Legislative Goals: Special-Purpose Entities toLegislative Goals: Special-Purpose Entities to encourage investments, in, for example,encourage investments, in, for example, Small Businesses or Affordable HousingSmall Businesses or Affordable Housing
  4. 4. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION Three Organizational FormsThree Organizational Forms developed by Business Ownersdeveloped by Business Owners Sole ProprietorshipSole Proprietorship General PartnershipGeneral Partnership CorporationCorporation
  5. 5. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION DEFINITIONSDEFINITIONS SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation Any BusinessAny Business Owned andOwned and Operated by anOperated by an IndividualIndividual Two or MoreTwo or More PersonsPersons Operating aOperating a Business for aBusiness for a ProfitProfit LegislativelyLegislatively Created andCreated and RegulatedRegulated Governance,Governance, Ownership andOwnership and FinancialFinancial StructureStructure
  6. 6. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION FORMATIONFORMATION SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation No Formalities orNo Formalities or LegalLegal Documentation;Documentation; May be ImpliedMay be Implied from Conduct orfrom Conduct or ActionsActions Written or OralWritten or Oral Agreement orAgreement or May be ImpliedMay be Implied from Conduct orfrom Conduct or ActionsActions Filing of ArticlesFiling of Articles of Incorporationof Incorporation with Secretary ofwith Secretary of State andState and Payment ofPayment of FeesFees
  7. 7. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION GOVERNING DOCUMENTSGOVERNING DOCUMENTS SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation None RequiredNone Required None Required;None Required; Most haveMost have AgreementAgreement specifying Rights,specifying Rights, Duties andDuties and ObligationsObligations Articles ofArticles of IncorporationIncorporation createcreate Corporation;Corporation; Bylaws prescribeBylaws prescribe its Operationits Operation
  8. 8. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION NATURE OF OWNERSHIPNATURE OF OWNERSHIP SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation Wholly OwnedWholly Owned by Singleby Single IndividualIndividual For Contribution,For Contribution, Partner receivesPartner receives Proportionate ShareProportionate Share of Profits/Lossesof Profits/Losses and Partnershipand Partnership PropertyProperty ResidualResidual Claim onClaim on Corporate EquityCorporate Equity and Right to Voteand Right to Vote for Directors andfor Directors and EssentialEssential GovernanceGovernance
  9. 9. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION LIABILITYLIABILITY SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation Sole ProprietorSole Proprietor PersonallyPersonally Liable for AllLiable for All Debts andDebts and ObligationsObligations Partners are JointlyPartners are Jointly and Severally Liableand Severally Liable for all Partnershipfor all Partnership Obligations, inObligations, in Contract and in TortContract and in Tort Shareholder’sShareholder’s Liability limited toLiability limited to Extent of CapitalExtent of Capital ContributionContribution [Limited Liability][Limited Liability]
  10. 10. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION TAXATIONTAXATION SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation Not a TaxableNot a Taxable Entity; IncomeEntity; Income (Loss) passes(Loss) passes through to Solethrough to Sole ProprietorProprietor Partnership not aPartnership not a Taxable Entity;Taxable Entity; Allocations ofAllocations of Income and LossIncome and Loss allowed withinallowed within Partnership beforePartnership before Pass-ThroughPass-Through CorporationCorporation taxed as Separatetaxed as Separate EntityEntity andand Dividends/CapitalDividends/Capital Gains also TaxedGains also Taxed [Double Taxation][Double Taxation]
  11. 11. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION MANAGEMENTMANAGEMENT SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation Sole ProprietorSole Proprietor has Completehas Complete ManagementManagement ControlControl All Partners haveAll Partners have Equal Rights inEqual Rights in Partnership’sPartnership’s Management andManagement and ConductConduct Managed byManaged by Board of DirectorsBoard of Directors elected byelected by Shareholders; BoardShareholders; Board may Delegatemay Delegate Authority toAuthority to Appointed OfficersAppointed Officers
  12. 12. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION TRANSFER OWNERSHIP INTERESTSTRANSFER OWNERSHIP INTERESTS SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation SoleSole Proprietorship notProprietorship not Transferable;Transferable; Property andProperty and Products areProducts are TransferableTransferable Limited Right ofLimited Right of Transfer subjectTransfer subject to Consent by allto Consent by all PartnersPartners FreelyFreely TransferableTransferable through Formalthrough Formal (NYSE) and(NYSE) and Informal (PrivateInformal (Private Equity) CapitalEquity) Capital MarketsMarkets
  13. 13. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION WITHDRAWAL OF OWNERWITHDRAWAL OF OWNER SoleSole ProprietorshipProprietorship GeneralGeneral PartnershipPartnership CorporationCorporation TerminatesTerminates SoleSole ProprietorshipProprietorship Partner Death orPartner Death or Withdrawal mayWithdrawal may TerminateTerminate PartnershipPartnership Corporation hasCorporation has Unlimited LifeUnlimited Life
  14. 14. FORMS OF BUSINESS ORGANIZATIONFORMS OF BUSINESS ORGANIZATION SPECIAL PURPOSE ENTITIESSPECIAL PURPOSE ENTITIES LimitedLimited PartnershipPartnership Limited LiabilityLimited Liability CorporationCorporation (LLC)(LLC) Subchapter “S”Subchapter “S” CorporationCorporation General PartnerGeneral Partner (Manager with(Manager with UnlimitedUnlimited Liability) andLiability) and Limited PartnerLimited Partner (Investors with(Investors with Limited Liability)Limited Liability) Hybrid withHybrid with Corporate LiabilityCorporate Liability Protections andProtections and Partnership TaxPartnership Tax TreatmentTreatment Identical to “C”Identical to “C” Corporation exceptCorporation except Right to ElectRight to Elect Income/LossesIncome/Losses Pass-ThroughPass-Through

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