HELP COLLEGE OF ARTS AND TECHNOLOGY

IN COLLABORATION WITH
SOUTHERN NEW HAMPSHIRE UNIVERSITY
____________________________________________
BUSINESS LAW [BUS 206]

LECTURE 16

BUSINESS
ORGANISATIONS

BUSINESS ORGANISATIONS
A business enterprise may be operated or conducted as
a sole proprietorship, an unincorporated business
association such as a general partnership, a limited
partnership or a limited liability company
The choice of the most appropriate form cannot be
determined in a general way but depends on the
particular circumstances of the owners
In choosing the form in which to conduct business, the
owners should consider a number of factors, including
ease of formation, Federal and State income tax laws,
external liability, management and control, transferability
of ownership interests, and continuity
The relative importance of each factor will vary with the
specific needs and objectives of the owners

SOLE PROPRIETORSHIP
Or individual proprietorship is a form of business ownership in
which one individual owns the business
An unincorporated business in which one person owns and
completely controls the business
Formed without any formality and no documents need be filed
Not a separate taxable entity and only the sole proprietor is
taxed
Receives all profits and net earnings are not subject to
corporate income taxes advantages
Unlimited liability for debts disadvantages
Interest in the business is freely transferable
Death of a sole proprietor dissolves the sole proprietorship

GENERAL PARTNERSHIP
Unincorporated business association consisting of two or
more persons who co-own a business for profit
Formed without any formality and no documents need be
filed
May elect not to be a separate taxable entity in which
case only the partners are taxed
Partners have unlimited liability for the partnerships
debts
Each partner has an equal right to control of the
partnership
Partners may assign their financial interest in the
partnership, but the assignee may become a member of
the partnership only if all of the members consent
Revised Partnership Act death, bankruptcy or
withdrawal of a partner does not dissolve a partnership

LIMITED PARTNERSHIP

Unincorporated business association consisting of at least one general

partner and at least one limited partner

Formed by filing a certificate of limited partnership with the State

May elect not to be a separate taxable entity, in which case only the
partners are taxed

Publicly traded limited partnerships are subject to corporate income

taxation

General partners have unlimited liability for the partnerships debts

Limited partners have limited liability

Each general partner has an equal right to control of the partnership

Limited partners have no right to participate in control

Partners may assign their financial interest in the partnership but the
assignee may become a limited partner only if all of the members consent

Death, bankruptcy or withdrawal of a general partner dissolves a limited

partnership

Limited partners have neither the right nor the power to dissolve the limited
partnership

LIMITED LIABILITY PARTNERSHIP [LLP]

Partnership in which at least one partner has a liability
limited to the loss of the capital contribution made to the
partnership
A registered LLP is a general partnership that by making
the statutorily required filing, limits the liability of its
partners for some or all of the partnerships obligations
Except for the filing requirements and partners liability
shield, the law governing LLPs is identical to the law
governing general partnerships

CORPORATIONS

Artificial being created by government grant, which for many

purposes is treated as a natural person

Legal entity separate and distinct from its owners i.e. the
shareholders

Formed by filing its articles of incorporation with the State

Taxed as a separate entity and shareholders are taxed on corporate

earnings that are distributed to them

Shareholders have limited liability for the corporations obligations

Shareholders risk of loss from the business is limited to the amount

of capital she invested in the business or paid for shares

The Board of Directors elected by the shareholders manages the

corporation

Shares in a corporation are freely transferable

Death, bankruptcy or withdrawal of a shareholder does not dissolve

the corporation has perpetual life

Capable of owning property, contracting, suing and being sued in its

own name

LIMITED LIABILITY COMPANY [LLC]

Unincorporated business association that provides limited liability to

all of its owners (members) and permits all of its members to
participate in management of the business

May elect not to be a separate taxable entity in which case only the
members are taxed

Publicly traded LLCs are subject to corporate income taxation

If an LLC has only one member, then it will be taxed as a sole

proprietorship unless separate entity tax treatment is elected
LLC provides many of the advantages of a general partnership plus
limited liability for all its members

Members may assign their financial interest in the LLC but the
assignee may become a member of the LLC only if all of the
members consent or the LLCs operating agreement provides
otherwise

In some States the death, bankruptcy or withdrawal of a member

dissolves an LLC, in others they do not

JOINT VENTURE
Unincorporated business association composed
of persons who combine their property, money,
efforts, skill, and knowledge for the purpose of
carrying out a particular business enterprise for
profit
Usually although not necessarily, it is of short
duration
The law of partnerships generally governs a joint
venture