FORMS OF BUSINESS ORGANIZATION Introduction and Understanding of Three Principal Forms of Business Organization Essential Attributes and Characteristics

cs Analyzing Business Needs and Selecting Appropriate Business Organizational Forms determined by Owners Objectives: Liability, Profit Distribution, Taxation and Capital Structure Dealings with Outside World: Other Owners,Heirs, Employees, Customers and Future Owners of Business Legislative Goals: Special-Purpose Entities to encourage investments, in, for example, Small Businesses or Affordable Housing Three Organizational Forms developed by Business Owners Sole Proprietorship General Partnership Corporation DEFINITIONS SOLO PROPRIETORSHIP DEFINITION
Any Business Owned and Operated by an Individual

Form

GENERAL PARTNERSHIP
Two or More Persons Operating a Business for a Profit

CORPORATION
Legislatively Created and Regulated Governance, Ownership and Financial Structure Filing of Articles of Incorporation with Secretary of State and Payment of Fees Articles of Incorporation create Corporation; Bylaws prescribe its Operation Residual Claim on Corporate Equity and Right to Vote for Directors and Essential Governance Shareholders Liability limited to Extent of Capital Contribution [Limited Liability] Corporation taxed as Separate Entity and Dividends/Capital Gains also Taxed [Double Taxation]

FORMATION GOVERNING DOCUMENTS NATURE OF OWNERSHIP

No Formalities or Legal Documentation; May be Implied from Conduct or Actions None Required

Written or Oral Agreement or May be Implied from Conduct or Actions None Required; Most have Agreement specifying Rights, Duties and Obligations For Contribution, Partner receives Proportionate Share of Profits/Losses and Partnership Property Partners are Jointly and Severally Liable for all Partnership Obligations, in Contract and in Tort Partnership not a Taxable Entity; Allocations of Income and Loss allowed within Partnership before Pass-Through

Wholly Owned by Single Individual

LIABILITY

Sole Proprietor Personally Liable for All Debts and Obligations

TAXATION

Not a Taxable Entity; Income (Loss) passes through to Sole Proprietor

MANAGEMENT

Sole Proprietor has Complete Management Control

All Partners have Equal Rights in Partnerships Management and Conduct

Managed by Board of Directors elected by Shareholders; Board may Delegate Authority to Appointed Officers Freely Transferable through Formal (NYSE) and Informal (Private Equity) Capital Markets Corporation has Unlimited Life

TRANSFER OWNERSHIP INTERESTS WITHDRAWAL OF OWNER

Sole Proprietorship not Transferable; Property and Products are Transferable Terminates Sole Proprietorship

Limited Right of Transfer subject to Consent by all Partners Partner Death or Withdrawal may Terminate Partnership

SPECIAL PURPOSE ENTITIES

Limited Partnership Limited Liability Corporation (LLC) Subchapter S Corporation

General Partner (Manager with Hybrid with Identical to C Unlimited Corporate Liability Corporation except Liability) and Protections and Right to Elect Limited Partner Partnership Tax Income/Losses (Investors with Treatment Pass-Through Limited Liability)