1. Chapter 41 TYPES OF BUSINESS ORGANIZATIONS

2. 2 Forms of Business Organizations The three principal forms of business organizations are: The three principal forms of business organizations are:  Sole Proprietorships,  Partnerships, LLP’s and LLC’s and  Corporations.

3. 3 Forms of Business Organizations Newly created forms of business --the LLC and LLP -- allow for tax treatment as a partnership with some limited liability. Newly created forms of business --the LLC and LLP -- allow for tax treatment as a partnership with some limited liability. The selection of the form of organization is determined by: The selection of the form of organization is determined by:  Nature of the business,  Tax considerations,  Financial risk involved,  Importance of limited liability, and  The extent of management control desired.

4. 4 In a sole proprietorship one person owns the business, controls all decisions, receives all profits, and has unlimited liability for all obligations. 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 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. 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.Definitions

5. 5 Specialized Forms of Business Organizations 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. 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. 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. 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.

6. 6 Franchise Business Format 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. 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. The Automobile Dealers’ Franchise Act and the Petroleum Marketing Practices Act are federal laws that provide covered franchisees with protection from bad-faith terminations.

7. 7 Liability of Franchisors A franchisor is not liable to third persons dealing with its franchisees. 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, 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. Liability of the franchisor may also arise in cases of product liability.

8. 8Franchisors Special Protections under Federal Laws. Special Protections under Federal Laws.  Automobile Dealer’s Day in Court Act.  Petroleum Marketing Practices Act. Disclosure. Disclosure. Vicarious Liability Claims Against Franchisors. Vicarious Liability Claims Against Franchisors.