Chapter 41, Types of Business Organizations

Sole or Individual Proprietorships – is a form of business ownership in which one individual owns the business. The owner may be the sole worker of the business or employ as many as others needed to run the concern. Individual proprietorships are commonly used in retail stores, service businesses, and agriculture. The owner or proprietor is not required to expend resources on organizational fees, and controls all decisions and receives all profits. Net earnings are not subject to corporate income taxes, only taxed as personal income. But the proprietor is subject to unlimited personal liability for the debts of the business and cannot limit the risk. Terminates proprietorship on the death of owner.

Partnerships – involves the pooling of capital resources and the business or professional talents of two or more individuals whose goal is making a profit. Today, these firms may convert to a limited liability partnership. They may be operated under the form of organization called Limited Liability Company, which allows tax treatment as a partnership with limited liability for the owners. Partnership allows individuals to pool resources and then initiate and conduct their business without the requirement of a formal organizational structure. Major disadvantage are the unlimited personal liability of each partner and the uncertain duration of the business because the partnership is dissolved by the death of one partner. Unlimited personal liability is remedied by the LLC. Professional partnerships that convert to an LLP shield innocent partners from personal liability beyond their investment in the firm.

Corporations – business corporations exist to make a profit and are created by government grant. A corporate structure consists shareholders, directors and officers. Shareholders are the owners and elect a board of directors, who are responsible for managing the business. Directors employ officers, who serve as the agents of the business and run day-to-day operations. Corporation ranges in size from incorporate one-owner enterprises to large multinational concerns. Advantage: shareholders’ risk of loss from the business is limited to the amount of capital she invested in the business or paid for the shares. A corporation is a separate legal entity capable of owing property, contracting, suing and being sued in its own name. It has perpetual life. A corporation is not affected by the death of any shareholders. Disadvantage: required to pay corporation income taxes. Shareholders are required to pay personal income taxes on the amount they received when they receive a distribution of profits. This is a form of double taxation. Incorporation involves the expenditure of funds for organizational expenses. Documents necessary for the formation of a corporation, which are required by state law, must be prepared, and certain filling fees are needed.

Joint Ventures – or joint adventure, are a relationship in which two or more persons combine their labor or property for a single business undertaking and share profits and losses equally or as otherwise agreed. Difference between joint venture and partnership: joint venture typically involves the pursuit of a single enterprise or transaction, although its accomplishment may require several years. A partnership is generally a continuing business or activity but may be expressly created for a single transaction. A joint venture continues for the time specified in the agreement of the parties. In the absence of a fixed-duration provision, a joint venture is ordinarily terminable at the will of any participant. If there is a joint venture, the fault or negligence of one venture will be imputed to the other ventures.

Unincorporated Associations – is a combination of two or more persons for the furtherance of a common nonprofit purpose. Ordinary contract law governs the authority of an unincorporated association over its members. Except when