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

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

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

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

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

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

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

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

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

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