WHAT IS BUSINESS/TYPES AND FORMS

WHAT IS BUSINESS/TYPES AND FORMSBusiness is the holding out by an Individual or a group for a mission Legal/Illegal.A business (typically called company, enterprise or firm) is a legally recognized organization designed to provide goods and / or services to consumers.Most businesses are formed to earn profit that will increase the wealth of its owners and grow the business itself. Exceptions however are co-operative enterprises and state owned enterprises.Business can also be formed not for profit.1ETYMOLOGY The term business relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work.2USAGE OF TERMSingular Usage Refers to a particular company or Corporation.Market Sector Usage Refers to a particular market sector, such as the music business, the Hosiery business, etc. or compound forms such as agribusiness. (also referred to as general or industrial usage).Broadest Usage This includes all activity by the Community of Suppliers of goods and services.3CLASSIFICATIONSBusiness may be classified in many ways but are generally classified by industry or by primary profit generating activity. Examples:Agriculture and Mining Businesses: These are concerned with the production of raw materials, such as plants or minerals.Financial Service Businesses: These include banks and other financial institutions and markets that generate profit through investment, lending and management of capital4CLASSIFICATIONSInformation Businesses: They generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.Manufacturing: They produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes are considered manufacturers. Real Estate Businesses: These generate profit from the selling, renting and development of properties, homes and buildings.5CLASSIFICATIONSWholesaling Businesses: These are bulk breakers intermediating between Manufacturers and Retailers.Retailers and Distributors: They act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalogue companies are distributors or retailers. Service Businesses: They offer intangible goods or services and typically generate profit by charging for labor or other services provided to government, other businesses or consumers. Organizations ranging from house decorators to consulting firms to restaurants and even to entertainers are types of service businesses. 6CLASSIFICATIONSTransportation Businesses: These deliver goods and individuals from location to location, generating a profit on the transportation fares or charges.Utilities: They produce public services, such as heat, electricity or sewage treatment, and are usually government chartered.There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America for example is generally considered to be the North American Industry Classification System, or NAICS.

7BUSINESS FORMSForms of business vary by jurisdiction. Business forms are generally a function of ownership. Thus how the business is owned.Most legal jurisdiction specify the forms of ownership that a business can take, creating a body of business association laws for each type.The following business forms are common in most of the Free World.8BUSINESS FORMSSole Proprietorship: A Sole Proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has personal liability of the debts incurred by the business.9BUSINESS FORMSPartnership: A partnership is a form of business in which two or more people operate for the common goal which is often making profit. In most forms of partnership, each partner has personal liability of the debts incurred by the business. There are three typical classifications of partnerships: general partnership, limited partnerships, and limited liability partnerships.10BUSINESS FORMSCorporation: A corporation is either a limited or unlimited liability entity that has a separate legal personality from its members. A corporation can be organized for-profit or not-for-profit. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the businesss managerial staff. In addition to privately-owned corporate models, there are state-owned corporate models.11BUSINESS FORMSCooperative: Often referred to as a co-op, a cooperative is a limited liability entity that can organize for-profit or not-for-profit. A cooperative differs from a 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 cooperatives. Cooperatives are fundamental to the ideology of economic democracy.12BUSINESS FORMS IN UK/COMMONWEALTH GHANA COMPANIES CODE 1963, ACT 179LIMITED COMPANYA limited company in the United Kingdom and the commonwealth is a corporation with shareholders whose liability is limited by shares (Ltd), which is the most common form of privately held company. Setting up as a limited company is an attractive option for many people as, unlike sole traders, personal assets are completely distinct from company finances. 13BUSINESS FORMS IN UK/COMMONWEALTHLIMITED COMPANY (Cont.)The private company equivalent in Australia is the Proprietary Limited Company (Pty Ltd). An Australian company with just Limited or Ltd at the end of its name is a public company, such as a company listed on the ASX (although public companies can be, and often are, unlisted). Australia doesnt have a direct equivalent to the plc.14PRIVATE COMPANY LIMITED BY GUARANTEE This type of Company does not have share capital but is guaranteed by its members, who agree to pay a fixed amount in the event of the companys liquidation. Frequently charities incorporate using this form of limited liability. In Australia only unlisted public company can be limited by guarantee.15PRIVATE COMPANY LIMITED BY SHARESIt has shareholders with limited liability and its shares may not be offered to the general public.16PUBLIC LIMITED COMPANY (PLC)Public limited companies can be publicly traded on a stock exchange similar to the U.S. Corporation (Corp.) and the German Aktiengesellaschaft (AG).A shareholder in a limited company, in the event of its becoming insolvent (equivalent to bankruptcy in the US) would be liable to contribute to the amount remaining unpaid on the shares (usually zero, as most shares are issued fully paid). Paid here relates to the amount paid to the company for the shares on first issue, and not to be confused with amounts paid by one shareholder to another to transfer ownership of shares between them. A shareholder is thus afforded limited liability. 17UNLIMITED COMPANYAn unlimited company or private unlimited company is a hybrid company incorporated either with or without a share capital (and similar to its limited company counterpart) but where the liability of the members or shareholders is not limited that is, they are liable to contribute whatever sums are required to pay the outstanding debts (if any) of the company should it ever go into formal liquidation and its assets are insufficient to pay its debts and liabilities and the expenses of liquidation. In that situation, the members or shareholders are liable for the shortfall. As with its counterpart the limited company, its members or shareholders have no direct liability to the creditors of an unlimited company.18UNLIMITED COMPANY (Cont.)An unlimited company has the benefit and status of incorporation same as its limited company counterpart. Situations where an unlimited company will be preferred to an alternative business model or its limited company counterpart include:Secrecy concerning financial affairs is desired, effectively shielding its financial affairs from its competitors and making them non-public information including shareholder dividend payments: a United Kingdom unlimited company, unlike its limited company counterpart, is generally not required to publish or make public its company financial statements.19UNLIMITED COMPANY (Cont.)The company is trading in an area where limited liability is not acceptable, vital or practical.There is no risk of insolvency.The company or its trading activities has or generates sufficient capital, funds or financing without need to approach general lenders such as high-street retail banks.

Community interest company/not-for-profit company.20BUSINESS FORMS IN THE UNITED STATES S corporationAn S corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.In general, S Corporations do not pay any income taxes. Instead, the corporations income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns. This concept is called single taxation; if the corporation is taxed as a C Corporation, it will face double taxation. Meaning both the corporations profits, and the shareholders dividends, will be taxed.21S CORPORATION (Cont.) In order to make an election to be treated as an S corporation, the following requirements must be met:Must be an eligible entity (a domestic corporation, or a limited liability company).Must have only one class of stock.Must not have more than 100 shareholders.Spouses are automatically treated as a single shareholder. Families, defined as individuals descended from a common ancestor, plus spouses and former spouses of either the common ancestor or anyone lineally descended from that person, are considered a single shareholder as long as any family member elects such treatment.22S CORPORATION (Cont.) Shareholders must be U.S. citizens or residents, and must be natural persons, so corporate shareholders and partnerships are generally excluded. However, certain trusts, estates, and tax-exempt corporations, notably 501(c)(3) corporations, are permitted to be shareholders.Profits and losses must be allocated to shareholders proportionately to each ones interest in the business.23C CORPORATION C corporationA C corporation (or C corp.) is a corporation in the United States that, for Federal income tax purposes, is taxed under 26 U.S.C. 11 and Subchapter C (26 U.S.C. 301 et seq.) of Chapter 1 of the Internal Revenue Code. Most major companies (and many smaller companies) are treated as C corporations for Federal income tax purposes. A Corporation must file under Subchapter C if it fails to meet even one requirement to qualify as an S Corporation. C corporation may have unlimited number of owners.24STEPS FOR FORMING A C CORPORATIONA prospective creator of a C corporation mustChoose an available business name that complies with their states corporations rules;Appoint the initial directors of their corporation;File formal paperwork, usually called articles of incorporation, and pay a filling fee that ranges from $100 to $800, depending on the state where they incorporate;25STEPS FOR FORMING A C CORPORATION (Cont.)Create corporate by laws, which lay out the operating rules for their corporation;Hold the first meeting of the board of directors;Issue stock certificates to the initial owners (shareholders) of the corporation; and Obtain licenses and permits that may be required for their business.26LIMITED LIABILITY COMPANY (LLC)A Limited Liability Company or a company with limited liability (abbreviated L.L.C. LLC or W.L.L) is a flexible form of business enterprise that blends elements of partnership and corporate structures. It is a legal form of business company, in the law of the vast majority of United States jurisdictions, that provides limited liability to its owners. Often incorrectly called a Limited Liability Corporation (instead of Company), it is a hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship (depending on how many owners there are). An LLC, although a business entity, is a type of unincorporated association and is not a corporation.27LIMITED LIABILITY COMPANY (LLC) (cont.)The primary characteristic an LLC shares with a corporation is limited liability, and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is often more flexible than a corporation and it is well-suited for companies with a single owner.It is important to understand that limited liability does not imply owners are always fully protected from personal liabilities. Courts can and do pierce the corporate veil of LLCs when some type of fraud or misrepresentation is involved, or under certain situations where the owner uses the company as an alter ego.28LIMITED LIABILITY LIMITED PARTNERSHIPThe Limited Liability Limited Partnership (LLLP) is a relatively new modification of the limited partnership, a form of business entity recognized under U.S. commercial law. An LLLP is a limited partnership and as such consists of one or more general partners and one or more limited partners. The general partners manage the LLLP, while typically the limited partners only have a financial interest.29Delaware Corporation Corporate havenNevada Corporation Corporate haven

A Massachusetts business trust or MBT is a legal trust set up for the purposes of business, but not necessarily in the state of Massachusetts. They may also be referred to as an unincorporated business organization or UBO.Many businesses are formed as MBTs to mitigate taxation; mutual funds are often structured as MBTs.30FACTORS DETERMINING BUSINESS FORMSThe size and scope of the business, and its anticipated management and ownership. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.31FACTORS DETERMINING BUSINESS FORMS (Cont.)The sector and country. Private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.Limited liability. Corporations, limited liability partnerships, and other specific types of business organizations protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.32FACTORS DETERMINING BUSINESS FORMS (Cont.)Tax Advantages. Different structures are treated differently in tax law, and may have advantages for this reason.Disclosure and Compliance Requirements. Different business structures may be required to make more or less information public (or reported to relevant authorities), and may be bound to comply with different rules and regulations.33LEGAL ENVIRONMENT OF BUSINESS FORMSMany businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent (In Ghana Registrar General) and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized.34LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate person. This means that unless there is misconduct, the owners own possessions are strongly protected in law, if the business does not succeed.35LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.36LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.Generally, corporations are required to pay tax just like real people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.37LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.To go public (sometimes called IPO) which basically means to allow a part of the business to be owned by a wider range of investors or the public in general you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures.38LEGAL ENVIRONMENT OF BUSINESS FORMSSome businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.Most Commercial Transactions are governed by commercial laws of various jurisdictions.39LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)There are also specialized laws on labor relations, occupational safety, anti-discrimination, minimum wage, unions, workers compensation and annual vacation or working hours time.A company is born (formed) by the creation of its Articles of AssociationMemorandum of AssociationFollowed by appointment of its Members (e.g. Shareholders, guarantors)Directors And most importantly: A company becomes a legal person when these records are stamped (authorized) by the local jurisdictions sovereign and (government authority enabled to authorize such an act).40LEGAL ENVIRONMENT OF BUSINESS FORMS (Cont.)A legal (artificial , juridical) person can do the same as a Natural Person. A person (natural), in the eyes of the law, can do the following:Contract and create obligationOwn PropertySue and be suedBe obliged to obey lawOpen and hold a bank account12.Worldwide Company registration:www.commercial-register.sg.ch/home/worldwide.html41LEGAL DOCTRINESThe business judgment rule is an American case law-derived concept in corporations law whereby the directors of a corporationare clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge and whereby a court will refuse to review the actions of a corporations board of directors in managing the corporation unless there is some allegation of conduct that the directors violated their duty of care to manage the corporation to the best of their ability. The burden is on the party challenging the decision to establish facts rebutting the presumption. 42INTERNAL AFFAIRS DOCTRINE The internal affairs doctrine is a choice of law rule in corporations law. Simply stated, it provides that the internal affairs of a corporation (e.g. conflicts between shareholders and management figures such as the board of directors and corporate officers) will be governed by the corporate statues and case law of the state in which the corporation is incorporated, sometimes referred to as the lex incorporationis. 43DE FACTO CORPORATIONIn order for a de facto corporation to be created, the following elements must exist:There must be an incorporation statute that lays out the various requirements under which legal incorporation can be accomplished;There must have been a good faith attempt to comply with the statute by the intended incorporators;For example, if the articles of incorporation were mailed to the appropriate office, but addressed to the wrong person, lost in the mail, or not filed by the corporation by the time the corporation began acting in an official capacity.44DE FACTO CORPORATIONThere must have been act made on the corporations behalf by its purported officers or agents.If all of these requirements are met, then the business will be treated as a corporation for all purposes, except with respect to acts by state itself. However, most states will not apply this doctrine to protect a person who was aware that the incorporation effort was defective at the time that they purported to act on behalf of the corporation.45CORPORATION BY ESTOPPELCorporation by estoppel, on the other hand, applies against someone who operates a business as if it were a corporation, irrespective of whether there was a good faith effort by the business to incorporate.The person doing business as such an entity may later be estopped from arguing that it is not in fact a corporation, in an attempt to reach the assets of the incorporators. For the same reason, defendants who had acted as a corporation will be estopped from denying liability as a corporation when sued by a plaintiff who had relied on the defendants corporate form when dealing with the defendant.46DIFFERENCES BETWEEN DE FACTO CORPORATION AND CORPORATION BY ESTOPPELUnlike a de facto corporation, the theory of corporation by estoppel only applies to contract claimants, not tort claimants, because claimant should have known the nature of the entity with which they were doing business.De facto corporation and corporation by estoppel are both terms that are used by courts in most common law jurisdictions to describe circumstances in which a business organization that has failed to become a de jure corporation (a corporation by law) will nonetheless be treated as a corporation, thereby shielding shareholders from liability.47PIERCING THE CORPORATE VEILPiercing the corporate veil describes a legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders or directors. Usually a corporation is treated as a separate legal person, which is solely responsible for the debts it incurs and the sole beneficiary of the credit it is owned. Common law countries usually uphold this principle of separate personhood, but in exceptional situations may pierce or lift the corporate veil. A simple example would be where a businessman has left his job as a director and has signed a contract to not compete with the company he has just left for a period of time. If he set up a company which competed with his former company, technically it would be the company and not the person competing. But it is likely a court would say that the new company was just a sham, a fraud or some other phrase, and would still allow the old company to sue the man for breach of contract. A court would look beyond the legal fiction to the reality of the situation. 48PIERCING THE CORPORATE VEILPiercing the corporate veil is not the only means by which a director or officer of a corporation can be held liable for the actions of the corporation. Liability can be established through conventional theories of contract, agency or tort law. For example, in situations where a director or officer acting on behalf of a corporation personally commits a tort, he and the corporation are jointly liable and it is unnecessary to discuss the issue of piercing the corporate veil. The doctrine is often used in cases where liability is found, but the corporation is insolvent.49