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FORMS OF BUSINESS ORGANIZATIONS April 1, 2015. VOCABULARY business entity business vehicle legal entity artificial person/ality legal person/ality corporate.

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Presentation on theme: "FORMS OF BUSINESS ORGANIZATIONS April 1, 2015. VOCABULARY business entity business vehicle legal entity artificial person/ality legal person/ality corporate."— Presentation transcript:

1 FORMS OF BUSINESS ORGANIZATIONS April 1, 2015

2 VOCABULARY business entity business vehicle legal entity artificial person/ality legal person/ality corporate person/ality

3 HOW TO EXPLAIN SIMILARITIES AND DIFFERENCES BETWEEN BUSINESSES - ownership - funding - management - profit - liability

4 BUSINESS ENTITIES IN ENGLAND  Sole proprietorship (sole trader, sole practitioner)  Partnership -general partnership -limited partnership -limited liability partnership Company -private limited company (Ltd) -public limited company (PLC)

5 SOLE PROPRIETORSHIP - a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business - the owner is in direct control of all elements and is legally accountable for the finances of such business - the owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts - small in size, low turnover, few employees (if any)

6 ADVANTAGES AND DISADVANTAGES 1. advantages - easy and inexpensive to set up (straightforward registration, simple record keeping) - owner keeps all the profit after taxes - easiest way to test the market - complete control of business (you are your own boss) 2. disadvantages - owner has unlimited personal liability for the business - hard to raise money - complete control of business (a heavy burden on your shoulders)

7 EXAMPLES - 75% of all businesses in the UK are sole traders and 73% in the USA - majority of these businesses are in the service sector (shops, plumbers, hairdressers, bed&breakfast hotels, real estate agencies…) - self-employed professionals – bookkeppers, photographers, architects, translators, freelance writers…lawyers and doctors

8 GENERAL PARTNERSHIP - a type of business entity that is owned and run by two or more natural persons called general partners - each partner deemed an agent (has actual authority), each partner equally participates in the management - joint and several liability for business debts, taxes and tortious liablity (as partnership and as individuals) - profits shared equally unless otherwise provided for in the partnership agreement - terminated on death, disability or withdrawal of one partner unless otherwise provided in the partnership agreement - 8% of all businesses in the UK are general partnerships

9 LIMITED PARTNERSHIP - a type of business entity that is owned and run by two or more natural persons - only one partner is required to be a general partner (there can be more), others are limited partners - general partners have all the rights and obligations as in a general partnership - limited partners have limited personal liability (liable only on debts incurred by the firm to the extent of their registered investment), have no management authority, receive a return on investment from general partners

10 LIMITED LIABILITY PARTNERSHIP - a UK LLP is a corporate body (it has a continuing legal existence independent of its members) - all partners are limited partners – personally liable only to the extent of their investment - all partners have joint liability, but no several liablity - LLP pays no company tax, profit is distributed to partners and they pay income tax as self-employed individuals

11 ADVANTAGES AND DISADVANTAGES - partners share profits, liabilities and decision making 1. advantages - more partners, more capital - less strictly orgnaized than a company, management is more flexible - shared responsabilities and easier decision making 2. disadvantages - agreement - disagreements - profit sharing - higher taxes with higer income - unlimited liability for general partners

12 PRIVATE LIMITED COMPANY (Ltd.) - also called private company limited by shares - ”limited by shares” means that the company has shareholders, and that the liability of the shareholders to creditors of the company is limited to the capital originally invested - it is a corporate body and has perpetual life - advantages – limited liability, no minimum capital requirement, easier disclosure requirements (SHARES ARE NOT OFFERED TO THE PUBLIC) - 90% of all small and medium-sized companies are Ltd.

13 PUBLIC LIMITED COMPANY (PLC) - appropriate for larger businesses where SHARES ARE intended to be AVAILABLE TO THE GENERAL PUBLIC - a minimum share capital of £50,000, of which at least one-quarter must be paid up before the company can obtain its trading certificate from Companies House and start trading - the only type of company which may raise capital by offering securities (shares or debentures) to the public - public companies are subject to more stringent legal requirements than private companies on a wide range of matters, but especially in relation to share capital, directors and accounts

14 BUSINESS ENTITIES IN THE USA 1. sole proprietorship 2. partnership - general partnership - limited partnership - limited liability partnership (not in all states, in some states only for lawyers, accountants, architects) - joint venture (acts as a general partnership but for a limited period of time or one business venture)

15 3. limited liability company - a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation

16 4. corporation a) S corporation - a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code - do not pay any federal income taxes; instead, the corporation's income or losses are divided among and passed through to its shareholders B) C corporation - refers to any corporation that is taxed separately from its owners

17 VOCABULARY an agent capital a corporation a creditor a share a shareholder turnover

18 THANK YOU!

19 companies House company tax corporate body general partner income tax joint liability joint venture legal person limited partner natural person partnership agreement perpetual life self-employed professional several liability share capital sole practitioner trading certificate unlimited liability

20 to be accountable for something to incur a debt to invest capital to own a business to raise capital to receive profits to register a business to run a business to set up a business


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