1. Comprehensive Volume, 18 th Edition Chapter 43: Forms of Business Organizations

2. Forms of Business Organizations The three principal forms of business organizations are sole proprietorships, partnerships, and corporations. Newly created forms of business -the limited liability company and the limited liability partnership-allow for tax treatment as a partnership with some limited liability. The selection of the form of organization is determined by the nature of the business, tax considerations, the financial risk involved, the importance of limited liability, and the extent of management control desired.

3. Definitions In a sole proprietorship one person owns the business, controls all decisions, receives all profits, and has unlimited liability for all obligations. A partnership involves the pooling of capital resources and talents of two or more persons whose goal is making a profit; the partners are subject to unlimited personal liability. A corporation is an entity--an artificial being-- created by a government grant; the corporation itself bears all liability; shareholders elect a board of directors, who are responsible for managing the business.

4. Specialized Forms of Business A joint venture exists when two or more persons combine their labor or property for a single business undertaking and share profits and losses as agreed. An unincorporated association is a combination of two or more persons for the pursuit of a common purpose. A cooperative consists of two or more persons or enterprises, such as farmers, who cooperate to achieve a common objective, such as the distribution of farm products.

5. Franchises By a franchise, the owner of a trademark, trade name, or copyright licenses others to use the mark or copyright in selling goods or services. The Automobile Dealers’ Franchise Act and the Petroleum Marketing Practices Act are federal laws that provide covered franchisees with protection from bad-faith terminations.

6. Liability of Franchises State laws also protect franchisees in a wide range of businesses. A franchisor is not liable to third persons dealing with its franchisees. Liability of the franchisor may, however, be imposed on the ground of the apparent authority of the franchisee or the latter’s control by the franchisor. Liability of the franchisor may also arise in cases of product liability.