Types/ Forms of Business

7/29/2019 Types/ Forms of Business

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FORMSOFBUSINESS

OWNERSHIP


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SOLE PROPRIETORSHIPS

PARTNERSHIPS

CORPORATIONS

THREE MAJOR TYPES OF

OWNERSHIPS


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WHO HAS WHICH PIECE OF

PIE?


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....owned by a single individual

Sole Proprietorship


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Fe

atures

ofSole

P

roprietorship

Owned and operated by a single personOwnership flexibility

Management flexibilityAbsolute profit retention

Easy to form and dissolve

Mostly found in small businesses Owner only requires a few legal

prerequisites

Name registrationNecessary licence

Liability coverage(optional)

Operated by owners own finances

Owner makes decision, takes action &


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...owned by two or more people/groups

Partnerships


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P

artner

ships

Owned and operated by two or more

persons

Easy to form Hard to dissolve

Formation

Formal(contractual relation) Informal (verbal relation)

Owners require only a few legal

prerequisites Name registration

Necessary license

Increased access to borrowed funds


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Types of Partners

General or activepartnership

Limited or SleepingPartner

Active in the operation

of a business Liable for all of its

debts.

Gets most benefits-

profit, authority &unlimited liability.

Not involved in its daily

operations Liability limited to their

investment

Only invests in a

business, can have avote on certain issues


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General Partnership

Limited Partnership

Joint Ventures

Types of Partnerships


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General Partnership

No local or state filings are required to create this

type of partnership.

Each partner is personally liable for all of the debts

of the partnership (unlimited liability)

Any one partner can form partnership by entering

into a contract on behalf of the partnership

Also, each partner is personally liable for the entireamount of any partnership debt


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Limited Partnership

Consists of one or more generaland limitedpartners.

Limited liability

Often used as investment medium for large

projects requiring a large amount of cash.

The legal structure used by most venture


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Joint Ventures

A temporary partnership between companies

A company finds a partner in the country where it wants

to do business.

Attract small firms to conduct international business


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a legal entity separate from its owners,

the shareholders

Corporation


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Feature

sofCor

poration

s

Assets and liabilities are separate by its

owners

Regular corporations are called Ccorporations

Corporations must have at least one

shareholder

The shareholders of corporations have

limited liability protection

Presumed to be for-profit entities, and so

they can have unlimited years of losses

Businesses whose size reaches 75

shareholders may organize themselves as

S corporation


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Types of Corporations

Domestic corporation Incorporated within a state or a city

Foreign corporationA business done in another state by a firm

Alien corporationA firm incorporated in one nation does

business in another.


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O

wnership

Forms of

Ownerships

:-

Sole Proprietorship Partnership Corporation

Number of

owners

One owner Two or more Unlimited #. of

shareholders- up to 75 in

s corporation

Liability Unlimited personal

liability

Personal assets at

risk of any partner

Limited

Advantage

s

1. Owner retains all

profits

2. Easy to form and

dissolve

3. Owner has flexibility

1. Easy to form

2. Benefits from

complimentary skills

3. Expanded financial

capacity

1. Limited financial

liability

2. Specialized skills

3. Expanded financial

capacity

4. Large scale

operations

Disadvanta

ges

1. Unlimited financial

liability

2. Financing limitations

3. Management

deficiency & lack of

efficiency

1. Unlimited financial

liabilities

2. Interpersonal

conflicts

3. Lack of continuity

4. Difficult to dissolve

1. Difficult and

costly to form

and dissolve

2. Tax

disadvantages

3. Legal

restrictions

Documents

Types/ Forms of Business