Forms of Business Organization in
the United States
Principal forms
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Sole proprietorship (inidividual
ownership)
Partnership (association of persons)
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General partnership
Limited partnership
Corporation (association of capital)
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C-corporation
S-corporation
Sole proprietorship
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Also called individual ownership – a
business owned by one person (a
restaurant, a retail store, a farm
etc.)
The owner has unlimited control
over the business and enjoys all the
profits
The owner also has unlimited
personal responsibility for the losses
and debts
Sole proprietorship - advantages
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The simplest way to set up a
business – low start-up costs
Less administrative paperwork
Owner in direct control of decision
making
Minimal working capital required
All profits to the owner
Disadvantages
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Owner fully responsible for all debts
and obligations related to his or her
business
Creditor would normally have a
right against all of his or her assets,
business or personal (unlimited
liability)
Difificult to raise capital
Lack of continuity in business
organization in the absence of the
owner
Partnership
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A partnership is an agreement in
which two or more persons combine
their resources with a view to
making a profit
A partnership agreement should be
drawn up
Partnership agreement
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The legal document that defines
each person’s rights and
responsibilities, as well as
provisions for running the company,
both day-to-day and in the event
that someone dies or the company
dissolves.
Partnership agreement – cont.
It should address the following
issues:
 Decision-making
 Capital contribution
 Salaries/distribution
 Death/disability
 Dissolution
General partnership
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All members share the management
of the business
Each member is personally liable for
all the debts and obligations of the
business
Each partner must assume the
consequences of the action of other
partner(s)
Limited partnership
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Some members are general partners who
control and manage the business and
may be entitled to a greater share of the
profits
Other partners are limited and contribute
only capital, take no part in management
and are liable for debts to a specified
extent only
A legal document, setting out specific
requirements, must be drawn up
Partnership - advantages
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Ease of formation
Low start-up costs
Additional sources of investment
Broader management base
Partnership - disadvantages
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Unlimited liability for general
partners
Lack of continuity
Capital divided authority
Possible conflicts between partners
Corporation - definitions
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A legal entity that is separate from
its owners, shareholders
An artificial person created under
law and empowered to achieve a
specific purpose
An organization formed with the
state governmental approval to act
as an artificial person to carry on
business (or other activities) for
profit
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A separate legal entity owned by
shareholders and ruled by a board
of directors who elect officers to do
day to day management.
Types of corporations
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Private business corporations
Non-profit corporations (for religious,
educationsal, charitable purposes)
Public corporations (formed by
governments for public purposes)
Close corporations (a few shareholders
with a working or familial connections
permitted to operate informally)
The Articles of Incorporation
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The document that sets out the rules for
running the company’s internal affairs
Includes the names of the incorporators
(the responsible parties), the amount of
stock it will be authorized to issue and its
purpose
Determines the rights and obligations of
members and directors
Shareholders elect a board of directors
C and S corporations
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Income from a C corporation is
taxed twice. The corporation pays
tax on its net income. Then,
shareholders also pay tax on
distributions. Income from an S
corporation is taxed once at the
shareholder level.
Corporation - advantages
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Perpetual life (succession) – continuous
existence
Limited liability (shareholders protected
from personal claims)
Access to capital – easier to raise capital
Transferability of shares (or of ownership)
– shares can be bought, sold, exchanged
or given
Professional, specialized management
Disadvantages
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Closely regulated
The most expensive form to
organize
Extensive record keeping necessary
Higher taxation (double taxation of
dividens, larger business tax rates)
Corporations in the USA
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Out of all business organization
forms, corporations amount only to
20 percent
They do 80 percent of the busines
in the country
Vocabulary
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Sole proprietorship – pojedinačno
vlasništvo
Business entity – poslovni subjekt
Partnership – partnerstvo, društvo osoba
Limited partnership – komanditno društvo
Corporation – društvo kapitala
Creditor - vjerovnik
Retail store – dućan s maloprodajom
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Artificial person – pravna osoba
Government grant – odobrenje
vlade
Perpetual life – trajni život
Limited liability – ograničena
odgovornost
Transferability of shares –
prenosivost dionica
Complete the following:
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The sole proprietor has ________
control over the business.
In a partnership, profits and losses
are shared ________ unless
otherwise agreed.
One of the attributes of a
corporation is _______ liability.
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The sole proprietor has UNLIMITED
control over the business.
In a partnership, profits and losses
are shared EQUALLY unless
otherwise agreed.
One of the attributes of a
corporation is LIMITED liability.
Translate the following:

Each business form has its own
advantages and disadvantages. It is
selected by people contemplating
the formation of a business from
the standpoint of financial
responsibility, control of operation,
possibilities of growth and
expansion, and the possibilities of
capitalization and financial
development.
Thank you for your attention!