Forms of Business Organization in the United States
Principal forms
Sole proprietorship Partnership Corporation
Sole proprietorship
Also called individual ownership – a business owned by one person (arestaurant, a retain store, a farm etc.)
The owner has unlimited control over the business and enjoys all the profits
The owner also has unlimited personal responsibility for the losses and debts
Sole proprietorship - advantages
The simplest way to set up a business – low start-up costs
Less administrative paperwork Owner in direct control of decision
making Minimal working capital required All profits to the owner
Disadvantages
Owner fully responsible for all debts and obligations related to his or her business
Creditor would normally have a right against all of his or her assets, business or personal (unlimited liability)
Difificult to raise capital Lack of continuity in business
organization in the absence of the owner
Partnership
A partnership is an agreement in which two or more persons combine their resources with a view to making a profit
A partnership agreement should be drawn up
General partnership
All members share the management of the business
Each member is personally liable for all the debts and obligations of the business
Each partner must assume the consequences of the action of other partner(s)
Limited partnership
Some members are general partners who control and manage the business and may be entitled to a greater share of the profits
Other partners are limited and contribute only capital, take no part in management and are liable for debts to a specified extent only
A legal document, setting out specific requirements, must be drawn up
Partnership - advantages
Ease of formation Low start-up costs Additional sources of investment Broader management base
Partnership - disadvantages
Unlimited liability for general partners
Lack of continuity Capital divided authority Possible conflicts between partners
Corporation - definitions
A legal entity that is separate from its owners, shareholders
An artificial person created under law and empowered to achieve a specific purpose
An organization formed with the state governmental approval to act as an artificial person to carry on business (or other activities) for profit
Types of corporations
Private business corporations – the Articles of Corporation
Non-profit corporations (for religious, educationsal, charitable purposes)
Public corporations (formed by governments for public purposes)
Close corporations (a few shareholders with a working or familial connections permitted to operate informally)
The Articles of Incorporation
The document that sets out the rules for running the company’s internal affairs
Includes the names of the incorporators (the responsible parties), the amount of stock it will be authorized to issue and its purpose
Determines the rights asnd obligations of members and directors
Shareholders elect a board of directors
Corporation - advantages
Perpetual life (succession) – continuous existence
Limited liability (shareholders protected from personal claims)
Access to capital – easier to raise capital Transferability of shares (or of ownership)
– shares can be bought, sold, exchanged or given
Professional, specialized management
Disadvantages
Closely regulated The most expensive form to
organize Extensive record keeping necessary Higher taxation (double taxation of
dividens, larger business tax rates)
Corporations in the USA
Out of all business organization forms, corporations amount only to 20 percent
They do 80 percent of the busines in the country
Vocabulary
Sole proprietorship – pojedinačno vlasništvo Creditor - vjerovnik Retail store – dućan s maloprodajom Artificial person – pravna osoba Limited liability – ograničena odgovornost Transferability of shares – prenosivost
dionica
Complete the following:
The sole proprietor has ________ control over the business.
In a partnership, profits and losses are shared ________ unless otherwise agreed.
One of the attributes of a corporation is _______ liability.
Translate the following:
Each business form has its own advantages and disadvantages. It is selected by people contemplating the formation of a business from the standpoint of financial responsibility, control of operation, possibilities of growth and expansion, and the possibilities of capitalization and financial development.
Thank you for your attention!