Forms of Business Organization in the United States

Principal forms

Sole proprietorship Partnership Corporation

Sole proprietorship

Also called individual ownership – a business owned by one person (arestaurant, a retain 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

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

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

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

General partnership

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

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

Ease of formation Low start-up costs Additional sources of investment Broader management base

Partnership - disadvantages

Unlimited liability for general partners

Lack of continuity Capital divided authority Possible conflicts between partners

Corporation - definitions

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

Types of corporations

Private business corporations – the Articles of Corporation

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

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 asnd obligations of members and directors

Shareholders elect a board of directors

Corporation - advantages

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

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

Out of all business organization forms, corporations amount only to 20 percent

They do 80 percent of the busines in the country

Vocabulary

Sole proprietorship – pojedinačno vlasništvo Creditor - vjerovnik Retail store – dućan s maloprodajom Artificial person – pravna osoba Limited liability – ograničena odgovornost Transferability of shares – prenosivost

dionica

Complete the following:

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.

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!