1. Forms of Business Organization in the USA

2. Basic forms
Sole proprietorship
Partnership
Corporation

3. 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

4. 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)
Difficult to raise capital
Lack of continuity in business organization in the absence of the owner

5. 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

6. 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)

7. 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

8. Partnership - advantages
Ease of formation
Low start-up costs
Additional sources of investment
Broader management base

9. Partnership - disadvantages
Unlimited liability for general partners
Lack of continuity
Capital divided authority
Possible conflicts between partners

10. 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

11. Types of corporations
Private business corporations – the Articles of Corporation
Non-profit corporations (for religious, educational or 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)
De jure corporations (formally operated under the law); de facto corporations operate as if they were legal, but without the Articles of Incorporation being valid

12. The Articles of Incorporation
The document that sets out the rules for running the company’s 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

13. Corporation - advantages
Perpetual life (succession) – continuous existence; a corporation lives on regardless of the change in the structure of shareholders
Limited liability (a corporation’s liability for damages or debts is limited to its assets, so the shareholders protected from personal claims, unless they commit fraud)
Access to capital – easier to raise capital, as a corporation can issue shares of stock to raise funds
Transferability of shares (or of ownership) – shares can be bought, sold, exchanged or given
Professional, specialized management – hired by shareholders to manage the operation

14. Disadvantages Closely regulated The most expensive form to organize
Extensive record keeping necessary
Higher taxation (double taxation of dividens, larger business tax rates)

15. 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