FORMS OF

BUSINESS
ORGANIZATION

FORMS OF BUSINESS ORGANIZATION

Introduction and Understanding of

Three Principal Forms of Business

Organization
Essential Attributes and
Characteristics
Analyzing Business Needs and
Selecting Appropriate Business
Form

FORMS OF BUSINESS ORGANIZATION

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

FORMS OF BUSINESS ORGANIZATION

Three Organizational Forms

developed by Business Owners

Sole Proprietorship
General Partnership
Corporation

FORMS OF BUSINESS ORGANIZATION

DEFINITIONS
Sole
Proprietorship

Any Business
Owned and
Operated by an
Individual

General
Partnership

Corporation

Two or More
Persons
Operating a
Business for a
Profit

Legislatively
Created and
Regulated
Governance,
Ownership and
Financial
Structure

FORMS OF BUSINESS ORGANIZATION

FORMATION
Sole
Proprietorship

No Formalities or
Legal
Documentation;
May be Implied
from Conduct or
Actions

General
Partnership

Corporation

Filing of Articles
Written or Oral
of Incorporation
Agreement or
with Secretary of
May be Implied
State and
from Conduct or
Payment of
Actions
Fees

FORMS OF BUSINESS ORGANIZATION

GOVERNING DOCUMENTS
Sole
Proprietorship

General
Partnership

Corporation

None Required

None Required;
Most have
Agreement
specifying Rights,
Duties and
Obligations

Articles of
Incorporation
create
Corporation;
Bylaws prescribe
its Operation

FORMS OF BUSINESS ORGANIZATION

NATURE OF OWNERSHIP
Sole
Proprietorship

General
Partnership

For Contribution,
Partner receives
Wholly Owned
Proportionate Share
by Single
of Profits/Losses
Individual
and Partnership
Property

Corporation

Residual

Claim on
Corporate Equity
and Right to Vote
for Directors and
Essential
Governance

FORMS OF BUSINESS ORGANIZATION

LIABILITY
Sole
Proprietorship

General
Partnership

Sole Proprietor Partners are Jointly

Personally
and Severally Liable
Liable for All
for all Partnership
Debts and
Obligations, in
Obligations
Contract and in Tort

Corporation

Shareholders
Liability limited to
Extent of Capital
Contribution
[Limited Liability]

FORMS OF BUSINESS ORGANIZATION

TAXATION
Sole
Proprietorship

General
Partnership

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

Partnership not a
Taxable Entity;
Allocations of
Income and Loss
allowed within
Partnership before
Pass-Through

Corporation

Corporation

taxed as Separate
Entity and
Dividends/Capital
Gains also Taxed
[Double Taxation]

FORMS OF BUSINESS ORGANIZATION

MANAGEMENT
Sole
Proprietorship

General
Partnership

Sole Proprietor
has Complete
Management
Control

All Partners have

Equal Rights in
Partnerships
Management and
Conduct

Corporation

Managed by

Board of Directors
elected by
Shareholders; Board
may Delegate
Authority to
Appointed Officers

FORMS OF BUSINESS ORGANIZATION

TRANSFER OWNERSHIP INTERESTS

Sole
Proprietorship

General
Partnership

Sole
Proprietorship not Limited Right of
Transferable;
Transfer subject
Property and to Consent by all
Products are
Partners
Transferable

Corporation

Freely
Transferable
through Formal
(NYSE) and
Informal (Private
Equity) Capital
Markets

FORMS OF BUSINESS ORGANIZATION

WITHDRAWAL OF OWNER
Sole
Proprietorship

General
Partnership

Corporation

Terminates
Sole
Proprietorship

Partner Death or
Withdrawal may
Terminate
Partnership

Corporation has
Unlimited Life

FORMS OF BUSINESS ORGANIZATION

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)