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    Forms of Business Organization

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    Katrina Eustace
    The document discusses the key forms of business organization including sole proprietorships, partnerships, corporations, and cooperatives. It provides details on the characteristics of each form, such as sole proprietors receiving all profits but also absorbing all losses as a single owner. Partnerships involve two or more owners who contribute capital and share profits but are also personally liable for debts. Corporations provide owners with limited liability but are more heavily regulated and subject to double taxation. Cooperatives are owned and controlled by members who share decision-making.

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    Forms of Business Organization

    Uploaded by

    Katrina Eustace
    43 views33 pages
    The document discusses the key forms of business organization including sole proprietorships, partnerships, corporations, and cooperatives. It provides details on the characteristics of each form, such as sole proprietors receiving all profits but also absorbing all losses as a single owner. Partnerships involve two or more owners who contribute capital and share profits but are also personally liable for debts. Corporations provide owners with limited liability but are more heavily regulated and subject to double taxation. Cooperatives are owned and controlled by members who share decision-making.

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    The document discusses the key forms of business organization including sole proprietorships, partnerships, corporations, and cooperatives. It provides details on the characteristics of each form, such as sole proprietors receiving all profits but also absorbing all losses as a single owner. Partnerships involve two or more owners who contribute capital and share profits but are also personally liable for debts. Corporations provide owners with limited liability but are more heavily regulated and subject to double taxation. Cooperatives are owned and controlled by members who share decision-making.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    43 views33 pages

    Forms of Business Organization

    Uploaded by

    Katrina Eustace
    The document discusses the key forms of business organization including sole proprietorships, partnerships, corporations, and cooperatives. It provides details on the characteristics of each form, such as sole proprietors receiving all profits but also absorbing all losses as a single owner. Partnerships involve two or more owners who contribute capital and share profits but are also personally liable for debts. Corporations provide owners with limited liability but are more heavily regulated and subject to double taxation. Cooperatives are owned and controlled by members who share decision-making.

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    © All Rights Reserved
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    of 33

    FORMS OF BUSINESS

    ORGANIZATIONS
    It is important that the FORMS OF
    business owner seriously BUSINESS
    ORGANIZATION
    considers the different
    forms of business
    organization — types such
    as sole proprietorship,
    partnership, and
    corporation.
    Which organizational form is
    most appropriate can be
    influenced by tax issues, legal FO R M S O F

    issues, financial concerns, and BUSINESS


    O RG A N I Z AT IO N

    personal concerns.
    For the purpose of this
    overview, basic information is
    presented to establish a
    general impression of business
    organization.
    1. Sole Proprietorship
    • A sole proprietorship is a
    business owned and managed FO R M S O F
    BUSINESS

    by one individual. O RG A N I Z AT IO N

    • It refers to an individual who


    owns the business and is
    personally responsible for its
    debts.
    • Since the business is the same
    legal entity as the proprietor, it
    ceases to exist upon the
    proprietor's death.
    SOLE PROPRIETORSHIP
    FORMS OF
    BUSINESS
    ORGANIZATION

    Single Owner
    (Sole
    Proprietor)

    Receives Absorbs
    all profits all losses
    Advantages
    • Ease of formation and
    dissolution. FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N
    • Typically, there are low start-up
    costs and low operational
    overhead.
    • Owners have complete control
    over all the aspects of his
    business and can take any
    managerial decisions that he/
    she wants to take.
    • Advantages

    • Ownership of all profits. FO R M S O F


    BUSINESS
    O RG A N I Z AT IO N
    • Sole Proprietorships are
    typically subject to fewer
    regulations.
    • No corporate income taxes. Any
    income realized by a sole
    proprietorship is declared on
    the owner's individual income
    tax return.
    Disadvantages
    • Unlimited liability - owner's
    personal assets can be taken FORMS OF
    BUSINESS
    away. O RG A N I Z AT IO N

    • Limited life.
    • It may be difficult for an
    individual to raise capital.
    2. Partnership
    • A business owned and operated
    by two or more persons who FO R M S O F
    bind themselves to contribute: BUSINESS
    O RG A N I Z AT IO N
    oMoney,
    oProperty, or
    oIndustry

    • The profits are divided among


    themselves.
    • Each partner is personally
    liable for any debt incurred by
    the partnership.
    PARTNERSHIP
    FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N

    Two or more
    persons
    (Partners)

    Profits Each
    are Partner is
    divided Contribute liable for
    money, debts
    property, or
    industry
    Advantages
    • Synergy.
    FO R M S O F
    • Partnerships are relatively easy BUSINESS
    O RG A N I Z AT IO N
    to form, however, considerable
    thought should be put into
    developing a partnership
    agreement at the point of
    formation.
    • Partnerships may be subject to
    fewer regulations than
    corporations.
    • Advantages

    • There is stronger potential of FO R M S O F


    BUSINESS
    access to greater amounts of O RG A N I Z AT IO N

    capital.
    • No corporate income taxes.
    Disadvantages
    • Unlimited liability.
    FO R M S O F
    • Limited life. A partnership may BUSINESS
    O RG A N I Z AT IO N
    end upon the withdrawal or
    death of a partner.
    • There is a real possibility of
    disputes or conflicts between
    partners which could lead to
    dissolving the partnership.
    A. General Partnership
    • all partners are personally
    liable for business debts FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N
    • any partner can be held totally
    responsible for the business
    and any partner can make
    decisions that affect the whole
    business.
    Major Features
    • 1. Created by agreement, proof
    of existence and estoppel. FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N
    • 2. Formed by two or more
    persons
    • 3. The owners are all
    personally liable for any legal
    actions and debts the company
    may face.
    • It is a partnership in which
    partners share equally in both
    responsibility and liability FO R M S O F
    BUSINESS
    • By default, profits are shared O RG A N I Z AT IO N

    equally amongst the partners.


    • By default, each general
    partner has an equal right to
    participate in the management
    and control of the business.
    B. Limited Partnership
    • one partner is responsible for
    decision-making and can be FO R M S O F
    BUSINESS
    held personally liable for O RG A N I Z AT IO N

    business debts.
    • The other partner merely
    invests in the business.
    • Although the general structure
    of limited partnerships can
    vary, each individual is liable
    only to the extent of their
    invested capital.
    C. Limited Liability
    Partnership
    • LLPs are most commonly used FO R M S O F
    BUSINESS
    by professionals such as O RG A N I Z AT IO N

    doctors and lawyers.


    • The LLP structure protects each
    partner's personal assets and
    each partner from debts or
    liability incurred by the other
    partners.
    3. Corporation
    • A business owned by its
    stockholders. FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N
    • It is an artificial being created
    by operation of law.
    • The stockholders are not
    personally liable for the
    corporation’s debt.
    CORPORATION
    FO R M S O F
    BUSINESS
    O RG A N I Z AT IO N

    Five or more
    persons
    (Stockholders)

    Profits are
    Stockholders
    divided
    are not liable
    (preferred &
    for debts
    Common)
    Created by
    Law
    Advantages
    • Unlimited commercial life. The
    corporation is an entity of its FO R M S O F
    BUSINESS
    own and does not dissolve O RG A N I Z AT IO N

    when ownership changes.


    • Greater flexibility in raising
    capital through the sale of
    stock.
    • Ease of transferring ownership
    by selling stock.
    • Limited liability. This limited FO R M S O F
    liability is probably the biggest BUSINESS
    O RG A N I Z AT IO N
    advantage to organizing as a
    corporation. Individual owners
    in corporations have limits on
    their personal liability.
    • Even if a corporation is sued
    for billions of dollars, individual
    shareholder's liability is
    generally limited to the value
    of their own stock in the
    corporation.
    Disadvantages
    • Regulatory restrictions.
    Corporations are typically more FO R M S O F
    BUSINESS
    closely monitored by O RG A N I Z AT IO N

    governmental agencies,
    including federal, state, and
    local. Complying with
    regulations can be costly.
    • Higher organizational and
    operational costs.
    • Double taxation. The possibility
    of double taxation arises when
    companies declare and pay FO R M S O F

    taxes on the net income of the BUSINESS


    O RG A N I Z AT IO N

    corporation, which they pay


    through their corporate income
    tax returns.
    4. Cooperative
    • Often referred to as a "co-op“
    FO R M S O F
    • a cooperative is a limited BUSINESS
    O RG A N I Z AT IO N
    liability business that can
    organize for-profit or not-for-
    profit
    • A cooperative differs from a
    for-profit corporation in that it
    has members, as opposed to
    shareholders, who share
    decision-making authority
    • Cooperatives are typically
    classified as either consumer
    cooperatives or worker FO R M S O F

    cooperatives BUSINESS
    O RG A N I Z AT IO N

    • A cooperative is a legal
    entity owned and
    democratically controlled by its
    members
    • Members often have a close
    association with the enterprise
    as producers or consumers of
    its products or services, or as
    its employees
    Types of cooperative
    governance
    ❖Retailers' cooperative FO R M S O F
    BUSINESS
    ❖Worker cooperative O RG A N I Z AT IO N

    ❖Volunteer cooperative
    ❖Social cooperative
    ❖Consumers' cooperative
    ❖Business and employment
    cooperative
    ❖New generation cooperative
    Other Forms:
    holding company
    FO R M S O F
    limited company BUSINESS
    O RG A N I Z AT IO N
    limited liability company
    trust company
    A holding company is
    a company or firm that owns
    other companies' outstanding FO R M S O F

    stock. The term usually refers BUSINESS


    O RG A N I Z AT IO N

    to a company which does not


    produce goods or services
    itself; rather, its purpose is to
    own shares of other companies
    A limited company is
    a company in which the liability
    of the members or subscribers FO R M S O F

    of the company is limited to BUSINESS


    O RG A N I Z AT IO N

    what they have invested or


    guaranteed to the company.
    Limited companies may be
    limited by shares or by
    guarantee.
    A limited liability
    company (LLC) is a flexible
    form of enterprise that blends FO R M S O F

    elements of partnership and BUSINESS


    O RG A N I Z AT IO N

    corporate structures
    A trust company is
    a corporation, especially
    a commercial bank, organized FO R M S O F

    to perform the fiduciary of BUSINESS


    O RG A N I Z AT IO N

    trusts and agencies


    THE END

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