FORMS OF

BUSINESS
ORGANIZATION
FORMS OF BUSINESS ORGANIZATION

Introduction and Understanding of

Three Principal Forms of Business
Organization
Essential Attributes and
Characteristics
Analyzing Business Needs and
Selecting Appropriate Business
Form
FORMS OF BUSINESS ORGANIZATION

Organizational Forms determined by

 Owner’s Objectives: Liability, Profit
Distribution, Taxation and Capital Structure
 Dealings with Outside World: Other Owners,
Heirs, Employees, Customers and Future
Owners of Business
 Legislative Goals: Special-Purpose Entities to
encourage investments, in, for example,
Small Businesses or Affordable Housing
FORMS OF BUSINESS ORGANIZATION

Three Organizational Forms

developed by Business Owners
 Sole Proprietorship
 General Partnership
 Corporation
FORMS OF BUSINESS ORGANIZATION

DEFINITIONS
Sole General
Corporation
Proprietorship Partnership
Legislatively
Two or More Created and
Any Business
Persons Regulated
Owned and
Operating a Governance,
Operated by an
Business for a Ownership and
Individual
Profit Financial
Structure
FORMS OF BUSINESS ORGANIZATION

FORMATION
Sole General
Corporation
Proprietorship Partnership
No Formalities or Filing of Articles
Written or Oral
Legal of Incorporation
Agreement or
Documentation; with Secretary of
May be Implied
May be Implied State and
from Conduct or
from Conduct or Payment of
Actions
Actions Fees
FORMS OF BUSINESS ORGANIZATION

GOVERNING DOCUMENTS
Sole General
Corporation
Proprietorship Partnership

None Required; Articles of

Most have Incorporation
Agreement create
None Required
specifying Rights, Corporation;
Duties and Bylaws prescribe
Obligations its Operation
FORMS OF BUSINESS ORGANIZATION
NATURE OF OWNERSHIP
Sole General
Corporation
Proprietorship Partnership

For Contribution,
Residual
Claim on
Partner receives
Wholly Owned Corporate Equity
Proportionate Share
by Single and Right to Vote
of Profits/Losses
Individual for Directors and
and Partnership
Essential
Property
Governance
 FORMS OF BUSINESS ORGANIZATION

LIABILITY
Sole General
Corporation
Proprietorship Partnership
Sole Proprietor Partners are Jointly Shareholder’s
Personally and Severally Liable Liability limited to
Liable for All for all Partnership Extent of Capital
Debts and Obligations, in Contribution
Obligations Contract and in Tort [Limited Liability]
FORMS OF BUSINESS ORGANIZATION

TAXATION
Sole General
Corporation
Proprietorship Partnership

Not a Taxable
Partnership not a
Taxable Entity;
Corporation
taxed as Separate
Entity; Income Allocations of
Entity and
(Loss) passes Income and Loss
Dividends/Capital
through to Sole allowed within
Gains also Taxed
Proprietor Partnership before
[Double Taxation]
Pass-Through
FORMS OF BUSINESS ORGANIZATION

MANAGEMENT
Sole General
Corporation
Proprietorship Partnership
Managed by
All Partners have Board of Directors
Sole Proprietor
Equal Rights in elected by
has Complete
Partnership’s Shareholders; Board
Management
Management and may Delegate
Control
Conduct Authority to
Appointed Officers
 FORMS OF BUSINESS ORGANIZATION

TRANSFER OWNERSHIP INTERESTS

Sole General
Corporation
Proprietorship Partnership
Freely
Sole
Transferable
Proprietorship not Limited Right of
through Formal
Transferable; Transfer subject
(NYSE) and
Property and to Consent by all
Informal (Private
Products are Partners
Equity) Capital
Transferable
Markets
FORMS OF BUSINESS ORGANIZATION

WITHDRAWAL OF OWNER
Sole General
Corporation
Proprietorship Partnership

Partner Death or
Terminates
Withdrawal may Corporation has
Sole
Terminate Unlimited Life
Proprietorship
Partnership
FORMS OF BUSINESS ORGANIZATION

SPECIAL PURPOSE ENTITIES

Limited Liability
Limited Subchapter “S”
Corporation
Partnership Corporation
(LLC)
General Partner
(Manager with Hybrid with Identical to “C”
Unlimited Corporate Liability Corporation except
Liability) and Protections and Right to Elect
Limited Partner Partnership Tax Income/Losses
(Investors with Treatment Pass-Through
Limited Liability)