1. 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

2. 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

3. PRINCIPAL BUSINESS FORMS
Sole proprietorships
Partnerships
Corporations
Chapter 26

4. 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

5. 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

6. COMPARISON OF MAJOR FORMS OF BUSINESS ORGANIZATION
Liability of owners
Sole proprietorship
Unlimited liability
General partnership
Corporation
Liability limited to amount of investment
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7. 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

8. 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

9. 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
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10. 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

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

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

13. 26-2 Creating and Terminating Partnerships
GOALS
Describe how a partnership is formed
Explain how a partnership may be ended
Chapter 26

14. 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

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

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

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

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

19. 26-3 Operating Partnerships
GOALS
List the powers of a partner
Explain the duties and potential liabilities of a partner
Chapter 26

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

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

22. 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

23. Name the four principal rights of a partner.
Chapter 26

24. 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

25. What are the duties of partners?
Chapter 26

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

27. 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