Chapter 26 Forms of Business Organization 5/22/2018 Chapter 26 Forms of Business Organization 26-1 Main Forms of Organization 26-2 Creating and Terminating Partnerships 26-3 Operating Partnerships Chapter 26 LAW

26-1 Main Forms of Organization GOALS State the definitions of the three basic business forms Contrast the attributes of the basic business forms Chapter 26

PRINCIPAL BUSINESS FORMS Sole proprietorships Partnerships Corporations Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Requirements for organizing Sole proprietorship None General partnership Agreement of the parties Corporation Obtain a charter from the state; organizational fees Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Legal status Sole proprietorship Owner is the business; not a separate entity General partnership Not a separate entity in many states Corporation Separate entity from owners Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Liability of owners Sole proprietorship Unlimited liability General partnership Corporation Liability limited to amount of investment Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Management Sole proprietorship Owner makes all decisions General partnership Partners have equal say in management unless otherwise specified in agreement Corporation Directors (elected by shareholders) set policy and appoint officers who run the company Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Dissolution Sole proprietorship Terminates upon owner’s decision or death General partnership Terminates by agreement of partners or upon a partner’s death, withdrawal, bankruptcy Corporation Ends when charter terminated Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Ease of formation Sole proprietorship Just do it General partnership Moderately difficult Corporation Assistance of legal counsel required Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Duration Sole proprietorship Death or as proprietor determines General partnership Death, bankruptcy, or withdrawal of any partner Corporation Can be perpetual Chapter 26

COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION Ability to attract professional managers Sole proprietorship Poor General partnership Moderate Corporation Excellent Chapter 26

What are the three main forms of business organization? Chapter 26

26-2 Creating and Terminating Partnerships GOALS Describe how a partnership is formed Explain how a partnership may be ended Chapter 26

CREATION OF A PARTNERSHIP Form and content of the partnership agreement Types of partnerships Classification by purpose Classification by extent of liability General partners Limited partners Continued on the next slide. Chapter 26

CREATION OF A PARTNERSHIP Status of minors Powers of a partnership Status of a partnership Chapter 26

What is the difference between a general partner and a limited partner? Chapter 26

TERMINATION OF A PARTNERSHIP By action of one or more of the partners By operation of law By court decree Chapter 26

Name the three main ways a partnership may be terminated. Chapter 26

26-3 Operating Partnerships GOALS List the powers of a partner Explain the duties and potential liabilities of a partner Chapter 26

A PARTNER’S POWERS A partner’s rights A partner’s authority Chapter 26

A PARTNER’S RIGHTS Right to participate in management Right to profits Right in partnership property Right to extra compensation Chapter 26

A PARTNER’S AUTHORITY Make binding contracts for the firm Receive money owed to and settle claims against the firm Borrow money in the firm’s name Sell Buy Draw and cash checks and drafts Hire and fire employees and agents Receive notice of matters affecting the partnership Chapter 26

Name the four principal rights of a partner. Chapter 26

A PARTNER’S DUTIES AND LIABILITIES Comply with partnership agreement and decisions Use reasonable care Act with integrity and good faith Not conduct competing business Keep accurate records A partner’s potential liabilities Chapter 26

What are the duties of partners? Chapter 26

PREVENT LEGAL DIFFICULTIES When considering entering into a small business . . . Carefully evaluate the level of commitment of time, energy, and financial resources necessary for success. Be sure to comply with applicable licensing, registration, and other legal requirements. If you utilize the partnership form, put the partnership agreement in writing with the aid of a qualified lawyer. Continued on the next slide Chapter 26

PREVENT LEGAL DIFFICULTIES The partnership agreement should include appropriate language covering each partner’s duties and authority share of profits and losses, if not intended to be equal salary or right to withdraw earnings (drawing account) vacation and sick-leave rights rights to withdraw from the partnership periodic valuation of each partner’s interest methods for raising additional capital if needed possible addition or withdrawal of a partner amicable resolution of disputes, as by arbitration possible continuation of the business after dissolution Chapter 26