Forms of business organizations April 1, 2015

Vocabulary business entity business vehicle legal entity artificial person/ality legal person/ality corporate person/ality

How to explain similarities and differences between businesses - ownership - funding - management - profit - liability

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)

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)

Advantages and disadvantages - 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)

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

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

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

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

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

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.

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

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)

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

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

vocabulary an agent capital a corporation a creditor a share a shareholder turnover

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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

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