Business Law-Organizations type

1. Business Law
Chapter 2
Business environment (types)
1

2. The Business Environment
 How many forms of business organizations we have?
There are four basic forms of business organization:
1. Sole Proprietorship (one owner)
2. Partnerships (general, limited and limited liability)
3. Corporations
4. Limited liability company (LLCs)

3. 1.Sole Proprietorship
 A business form for which there is one owner. This single
owner has unlimited liability for all debts of the firms.
 or
 A business Owned by one person.
 What is unlimited liability?
 If the organization is sued, the owner as an individual is
sued, and much of his or her personal property as well as
assets of the business may be seized to settle claims.
 Or
 The owner of a sole proprietorship is personally
responsible for all the company’s debts.

4. Advantages of Sole Proprietorship
 The sole Proprietorship is the oldest form of
business organizations. Following are the
advantages of sole proprietorship
1. Easily formed and inexpensive
2. Few government regulations
3. Only personal income tax

5. Advantages of Sole Proprietorship
 1. Easily formed and inexpensive:
 It means that starting sole proprietorship business is very easy, and
simple. Those who have few resources can start it.
 Business assets actually belong to the proprietor.
 The business pays no salary to the owner
 2. Few government regulations:
 As compare to other forms of businesses there are few government
regulations for sole proprietorship it does not need to take
permission to start business from government, no need for
registration etc.
 Government will check that the business is legal or illegal
 3. Only personal income tax:
 There is no separate tax for sole proprietorship business the owner
add any profits or subtract any losses from the business when
determining personal taxable income.

6. Disadvantages of Sole
Proprietorship
The following are the disadvantages of
sole proprietorship;
1. Difficulty in capital arrangements
2. Unlimited liability
3. Life of business limited to owner’s life

7. Disadvantages of Sole
Proprietorship
 1. Difficulty in capital arrangements:
 One problem with a sole proprietorship is the difficulty in capital
raising.
 Because the life and success of the business is so dependent on a
single individual, a sole proprietorship may not be as attractive to
lender as another form of organization.
 2. Unlimited liability:
 If the organization is sued, the owner as an individual is sued, and
much of his or her personal property as well as assets of the
business may be seized to settle claims.
 3. Life of business limited to owner’s life:
 The life and success of the business is so dependent on a single
individual, that a sole proprietorship business life is usually limited to
the life of the owner because another person can not maintain the
business like the original owner.

8. Partnership
 A partnership is a business owned by two
or more partner’s.
 Partners establish partnership on the basis
of partnership deed. In partnership deed
they write the terms and conditions of the
business.
 Types of Partnership
1. General Partnership
2.Limited Partnership
3. Limited Liability Partnership

9. 1. General Partnership
In a general partnership, each partner has
right and responsibilities similar to those of
a sole proprietor.
Partners have Unlimited personal liability
in general partnership.
Who is general partner?
Member of a partnership with unlimited
liability for the debts of the partnership is
called general partner.

10. 2.Limited Partnership
 A limited partnership has one or more general partners
and one or more limited partners.
 Who is limited partner?
 Member of a limited partnership not personally liable for
the debts of the partnership is called limited partner.
 The limited partners are basically passive partners.
Passive means that limited partner do not participate in
the operation of the business; this is left to the general
partner.
 Limited partners contribute capital and have liability
confined to that amount of capital; they can not lose more
than they put in.
 The limited partners are investors, and they share in the
profits or losses of the partnership according to the terms
of the partnership agreement.

11. Limited Liability Partnership
 A limited liability partnership is a relatively new form
of business organization.
 In this type of partnership, each partner has
unlimited personal liability for his or her own
professional activities, but not for the actions of
other partners.
 All of the partners in a limited liability partnership
may participate in management of the firm.

12. Advantages of Partnership
The following are the advantages of
partnership;
1. Ease of formation
2. No corporate taxation

13. Advantages of Partnership
 1. Ease of formation:
 Like sole proprietorship if partners have resources and
they becomes agree on terms and condition of the
business, they can easily start partnership business.
 Relative to a proprietorship a greater amount of capital
can often be raised because of more than one partner.
 2. No corporate taxation:
 Like sole proprietorship the partners do not pay
separate tax for business, but they add any profits or
loss from the business when determining personal
taxable income.

14. Disadvantages of Partnership
The following are the disadvantages of the
partnership.
1. Unlimited liability
2. Limited life of the organization
3. Difficulty in transfer of ownership

15. Disadvantages of Partnership
 1. Unlimited liability;
 The partners are personally responsible for all the
company’s debts.
 2. Limited life of the organization;
 If it is mentioned in the partnership deed that on death,
insolvency or insanity of any partner the business will be
closed, so on occurring of any of these conditions the
business will be closed.
 3. Difficulty in transfer of ownership;
 A partner with out the consent of other partner can not
transfer the ownership.

16. Corporation
What is corporation?
“A business form legally separate from its
owners is called corporation”.
The owners of corporation are called
stockholders or shareholders.
As a separate legal entity, a corporation
may own property in its own name. The
assets of a corporation belong to the
corporation itself, not the stockholders.

17. Corporation
The top level of a corporation's
professional management is the board of
directors.
These directors are elected by the
stockholders and are responsible for hiring
the other professional managers.

18. Advantages of corporation
The following are the main advantages of
corporation;
1. Limited liability
2. Easy transfer of ownership
3. Unlimited life
4. Ability to raise large sums of capital

19. Advantages of corporation
 1. Limited liability:
 In corporation the stockholders have limited
liability.
 What is limited liability?
 Limited liability means that the liabilities of
shareholders are limited to the amount they
have invested.
 They are not personally liable for any debt of
corporation (unlike sole proprietorship and
general partnership).

20. Advantages of corporation
2. Easy transfer of ownership;
 Corporation ownership itself is evidenced
by shares of stocks, with each stockholder
owning that proportion of the enterprise
represented by his or her shares in
relation to the total number of shares
outstanding.
 These shares are easily transferable to
any other person.

21. Advantages of corporation
3. Unlimited life;
Corporation exists apart from its owners,
its life is not limited by the lives of the
owners (unlike proprietorship and
partnership).
The corporation can continue even though
individual owner may die or sell their
stock.

22. Advantages of corporation
4. Ability to raise large sums of capital;
 As corporation is a legal entity so they
can raise capital easily by either issuing
shares or borrow money from bank etc.

23. Disadvantages of corporation
The following are the disadvantages of
corporation;
1. Double Taxation
2. Time consuming and expensive form
of business

24. Disadvantages of corporation
1. Double Taxation;
Taxation of the same income twice is
called double taxation.
 Corporation pays tax on the income it
earns, and the stockholder is also taxed
when he or she receive income in the form
of cash dividend.

25. Disadvantages of corporation
2. Time consuming and expensive form
of business;
As compare to sole proprietorship and
partnership corporation is time consuming
and expensive form of business, because
it takes time to incorporate and it will pay
the incorporation fee to the state in which
the firm is incorporated.

26. Limited liability company (LLCs)
 “A business form that provides its owners (called
“members”) with corporate style limited personal
liability and the federal tax treatment of a
partnership” is called limited liability company
(LLCs).
 A limited liability company (LLCs) is a hybrid
form of business organization that combine the
best aspects of both a corporation and a
partnership.

27. Advantages of (LLCs)
 Separate legal identity. ...
 Limited liability. ...
 Perpetual existence. ...
 Flexible management structure. ...
 Free transferability of financial interests. ...
 Pass-through taxation.

28. Disdvantages of (LLCs)
 Cost: An LLC usually costs more to form and
maintain than a sole proprietorship or general
partnership. States charge an initial formation
fee. ...
 Transferable ownership. Ownership in an LLC is
often harder to transfer than with a corporation.