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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
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
Partnership agreement
The legal document that defines
each persons 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
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
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 companys 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
Vocabulary
Sole proprietorship pojedinano
vlasnitvo
Business entity poslovni subjekt
Partnership partnerstvo, drutvo osoba
Limited partnership komanditno drutvo
Corporation drutvo kapitala
Creditor - vjerovnik
Retail store duan s maloprodajom
Artificial person pravna osoba
Government grant odobrenje
vlade
Perpetual life trajni ivot
Limited liability ograniena
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.
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!