FORMS OF BUSINESS
ORGANIZATIONS
April 1, 2015
VOCABULARY
business entity
business vehicle
legal entity
artificial person/ality
legal person/ality
corporate person/ality
HOW TO EXPLAIN SIMILARITIES AND
DIFFERENCES BETWEEN BUSINESSES
- ownership
- funding
- management
- profit
- liability
BUSINESS ENTITIES IN ENGLAND
 Sole proprietorship (sole trader, sole practitioner)
 Partnership
- general partnership
- limited partnership
- limited liability partnership
 Company
- private limited company (Ltd)
- public limited company (PLC)
SOLE PROPRIETORSHIP
- a type of business entity that is owned and run by one natural
person and in which there is no legal distinction between the owner
and the business
- the owner is in direct control of all elements and is legally
accountable for the finances of such business
- the owner receives all profits (subject to taxation specific to the
business) and has unlimited responsibility for all losses and debts
- small in size, low turnover, few employees (if any)
ADVANTAGES AND DISADVANTAGES
1. advantages
- easy and inexpensive to set up (straightforward registration, simple
record keeping)
- owner keeps all the profit after taxes
- easiest way to test the market
- complete control of business (you are your own boss)
2. disadvantages
- owner has unlimited personal liability for the business
- hard to raise money
- complete control of business (a heavy burden on your shoulders)
EXAMPLES
- 75% of all businesses in the UK are sole traders and 73% in the
USA
- majority of these businesses are in the service sector (shops,
plumbers, hairdressers, bed&breakfast hotels, real estate agencies…)
- self-employed professionals – bookkeppers, photographers,
architects, translators, freelance writers…lawyers and doctors
GENERAL PARTNERSHIP
- a type of business entity that is owned and run by two or more
natural persons called general partners
- each partner deemed an agent (has actual authority), each partner
equally participates in the management
- joint and several liability for business debts, taxes and tortious
liablity (as partnership and as individuals)
- profits shared equally unless otherwise provided for in the
partnership agreement
- terminated on death, disability or withdrawal of one partner unless
otherwise provided in the partnership agreement
- 8% of all businesses in the UK are general partnerships
LIMITED PARTNERSHIP
- a type of business entity that is owned and run by two or more
natural persons
- only one partner is required to be a general partner (there can be
more), others are limited partners
- general partners have all the rights and obligations as in a general
partnership
- limited partners have limited personal liability (liable only on debts
incurred by the firm to the extent of their registered investment), have
no management authority, receive a return on investment from
general partners
LIMITED LIABILITY PARTNERSHIP
- a UK LLP is a corporate body (it has a continuing legal existence
independent of its members)
- all partners are limited partners – personally liable only to the
extent of their investment
- all partners have joint liability, but no several liablity
- LLP pays no company tax, profit is distributed to partners and they
pay income tax as self-employed individuals
ADVANTAGES AND DISADVANTAGES
- partners share profits, liabilities and decision making
1. advantages
- more partners, more capital
- less strictly orgnaized than a company, management is more flexible
- shared responsabilities and easier decision making
2. disadvantages
- agreement
- disagreements
- profit sharing
- higher taxes with higer income
- unlimited liability for general partners
PRIVATE LIMITED COMPANY (Ltd.)
- also called private company limited by shares
- ”limited by shares” means that the company has shareholders, and
that the liability of the shareholders to creditors of the company is
limited to the capital originally invested
- it is a corporate body and has perpetual life
- advantages – limited liability, no minimum capital requirement,
easier disclosure requirements (SHARES ARE NOT OFFERED TO THE
PUBLIC)
- 90% of all small and medium-sized companies are Ltd.
PUBLIC LIMITED COMPANY (PLC)
- appropriate for larger businesses where SHARES ARE intended to be
AVAILABLE TO THE GENERAL PUBLIC
- a minimum share capital of £50,000, of which at least one-quarter
must be paid up before the company can obtain its trading certificate
from Companies House and start trading
- the only type of company which may raise capital by offering
securities (shares or debentures) to the public
- public companies are subject to more stringent legal requirements
than private companies on a wide range of matters, but especially in
relation to share capital, directors and accounts
BUSINESS ENTITIES IN THE USA
1. sole proprietorship
2. partnership
- general partnership
- limited partnership
- limited liability partnership (not in all states, in some states only for
lawyers, accountants, architects)
- joint venture (acts as a general partnership but for a limited period
of time or one business venture)
3. limited liability company
- a business structure that combines the pass-through taxation of a
partnership or sole proprietorship with the limited liability of a
corporation
4. corporation
a) S corporation
- a closely held corporation that makes a valid election to be taxed
under Subchapter S of Chapter 1 of the Internal Revenue Code
- do not pay any federal income taxes; instead, the corporation's
income or losses are divided among and passed through to its
shareholders
B) C corporation
- refers to any corporation that is taxed separately from its owners
VOCABULARY
an agent
capital
a corporation
a creditor
a share
a shareholder
turnover
THANK YOU!
companies House
natural person
company tax
partnership agreement
corporate body
perpetual life
general partner
self-employed professional
income tax
several liability
joint liability
share capital
joint venture
sole practitioner
legal person
trading certificate
limited partner
unlimited liability
to be accountable for something
to incur a debt
to invest capital
to own a business
to raise capital
to receive profits
to register a business
to run a business
to set up a business