Forms of Business Organization in the

United States
 Principal forms
• Sole proprietorship (inidividual ownership)
• Partnership (association of persons)
–General partnership
–Limited partnership
• Corporation (association of capital)
–C-corporation
–S-corporation
 Sole proprietorship
• 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
• 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
 Advantages of Sole Proprietorship
• Easy to start business.
• Owner makes all the decisions and is own
boss.
• Owner receives all profits.
• No business income taxes.
• Psychological—sense of freedom.
 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
Disadvantages of a Sole Proprietorship
• Capital is limited to what the owner can supply or
borrow.
• Unlimited liability - Owner is liable (responsible) for
all debts, even losing personal property if business
fails.
• Long hours and hard work necessary and owner may
have limited skills.
• Limited life - Life of the business depends upon
owner; it ends if owner quits or dies.
 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
 Partnership agreement
• 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
• 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
 Types of Partnerships
• General Partnership – all partners responsible
for the management and financial obligations
of the business.

• Limited Partnership – at least one partner not

active in daily running of the business.
 Advantages of a Partnership
• Fairly easy to start the business.

• Easier management – each partner brings ideas and expertise

to the business.

• Special taxes on partnership.

• More sources of capital available.

• More business skills available – usually can attract top talent

into the business.
 Disadvantages of a Partnership
• Each partner liable for business debts made by all partners,
even to losing personal property if business fails (unless
partnership is limited liability partnership).

• Each partner can make decisions, more than one boss –

potential conflicts.

• Limited Life - Partnership ends of a partner quits or dies.

• Each partner shares the profit.

 Setting-up a Business Partnership
Requirements:
• Registration with DTI or SEC (depending on
partnership’s capital)
• Submission of duly notarized Articles of Partnership
• Submission of SEC form F-105 (for partnerships with
foreign members)
• Procurement of licenses and clearances from
necessary government offices
• Registration with BIR
• Registration with government offices (if employing
individuals)
• Acquisition of business permit and mayor’s license
Procedure:
• Draft Partnership papers
• Present accomplished forms and documents
to SEC for processing and evaluation
• Present verification from local bank of
minimum paid up capital in trust account
• Present other requirements (for partnerships
with foreign or Corporation members)
• Claim registration from records division
• Complete necessary applications with
government agencies
 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
• 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
• 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
• 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
• 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
• 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
 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!