Types of business and business organizations

I Suppose features of business organizations (a-g) and match them with

types of business organizations (1-6). Use each item once.

1. The sole proprietorship

2. The partnership

3. The limited partnership

4. The limited liability partnership

5. The corporation

6. The limited liability company

1. It is suitable for companies with restricted numbers of owners

2. It has the organizational flexibility of a partnership

3. It is a form of business organization that includes elements of partnerships, corporations and a sole proprietorship

4. It is similar to a partnership, but there are one or more limited partners in addition to general ones

5. Its owners share with each other profits and losses

6. One owner is responsible for all business debts

7. It is governed by a board of directors

II Read the texts (a-e) and check your suggestions. Make a list of main

features for each type of business organization and discuss advantages

and disadvantages of every type.

A

A Sole proprietorship is a business which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation do not apply. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. In some jurisdictions a business owned by a married couple jointly can still be considered a sole proprietorship, in others it would be considered a type of partnership. A sole proprietorship essentially means a person does business in their own name and there is only one owner. Since the business is really just an extension of that person and not a new entity (like a corporation) any business debts are also personal debts. If the business were to get a judgment filed against it, it would be a problem for the owner. As a sole proprietorship is not a corporation, it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporation would have to. A business organized as a sole proprietorship will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a

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business organized as a corporation or limited liability company. Hiring employees may also be difficult. This form of business will have unlimited liability, therefore, if the business is sued, it is the proprietor's problem.

B

In the common law, a partnership is a type of business entity in which partners share with each other the profits or losses of the business undertaking in which they have all invested. In the civil law the partnership is a nominate contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise, contribute to it, by combining property, knowledge or activities and to share its profit. Partners may have a partnership agreement or declaration of partnership and in some jurisdictions such agreements may be registered and available for public inspection. There are two types of partnership: an unlimited or general partnership (partners are like sole-proprietors) and a limited partnership. A limited partnership is a form of partnership similar to a general partnership. There are two types of partners: General partners (GPs) and Limited partners (LPs). General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership. A silent partner, also known as a sleeping partner, is one who shares in the profits and losses of the business, but is uninvolved in its management, and/or whose association with the business is not publicly known. As in a general partnership, the GPs have apparent authority as agents of the firm to bind all the other partners in contracts with third parties. The GPs pay the LPs the equivalent of a dividend on their investment. The nature and extent of this payment will usually be defined in the partnership agreement. Like shareholders in a corporation, the LPs have limited liability, i.e. they are only liable on debts incurred by the firm to the extent of their registered investment, and they have no management authority. If LPs do assume a management role, they become GPs, and thus lose their limited liability protection and acquire the status of an agent.

C

Limited liability partnerships (LLP) are a form of business organization combining elements of partnerships and corporations. In the United States, each individual state has its own law governing their formation. In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act 2000 and are distinct from limited partnerships. The LLP is a popular form of organization among professionals, particularly lawyers, accountants, and architects. In some U.S. states (including California and New York), LLPs can only be formed for such professional uses. The liability of the members of an LLP also varies from state to state. Section 306(c) of the Uniform Partnership Act, a guideline upon which many state laws are based, grants LLPs a form of limited liability similar to that of a corporation. In the United Kingdom an LLP has full limited liability status for all kinds of debts and liabilities of the LLP. As in a partnership or limited liability

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company (LLC), the profits of an LLP are distributed among the partners for tax purposes; the LLP is not taxed separately. This avoids the problem of "double taxation" often found in corporation.

D

A limited liability company (denoted by L.L.C. or LLC) is a legal form of company offering limited liability to its owners. It is similar to a corporation, but is suitable for smaller companies with restricted numbers of owners. The concept of a limited liability company was developed in Germany in 1892 as the Gesellschaft mit beschränkter Haftung (GmbH). Unlike a public limited company, it can only have a limited number of owners. A limited liability company (LLC) differs from a limited liability partnership (LLP) in that the LLP has the organizational flexibility of a partnership. Furthermore, LLCs are more likely to be subject to a state's franchise taxes...

E

A limited company or a corporation (AmE) is a legal entity (distinct from a natural person) that often has similar rights in law to those of a natural person. Civil law systems may refer to corporations as "moral persons"; they may also go by the name "AS" (anonymous society) or something similar, depending on language. There are 2 types of limited companies or corporations: 1) In a private limited company (Ltd.), all shareholders must agree before any shares can be bought or sold. 2) In a public limited company (PLC), shares are bought and sold freely, for example on the stock exchange.

In colloquial usage, "corporation" usually refers to a commercial entity set up in accordance with a governmental framework. Churches (mainly in US, but not so much in other countries, where Churches have a different status), interest groups (both can form as not-for-profit corporations (non-profit organizations) or can exist as voluntary associations), cities and townships (often chartered as public corporations), among others, may also have historically lengthy corporate identities. Humans and other legal entities composed of humans (such as trusts and other corporations) can be members of corporations. In the case of for-profit corporations, these members hold shares and are thus called shareholders. When no members or shareholders exist, a corporation may exist as a "memberless corporation" or similar — this second type of corporation counts as a not-for-profit corporation. In either category, the corporation comprises a collective of individuals with a distinct legal status and with special privileges not provided to ordinary unincorporated businesses, to voluntary associations, or to groups of individuals. Typically, a board of directors governs a corporation on the behalf of the members. The corporate members elect the directors, and the board has a fiduciary duty to look after the interests of the corporation. The corporate officers such as the CEO, president, treasurer and other titled officers are usually chosen by the board to manage the affairs of the corporation. Corporations can also be controlled (in part) by creditors such as banks. In return for lending money to the

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corporation, creditors can demand a control interest analogous to that of a shareholder, including one or more seats on the board of directors. Creditors are not said to "own" the corporation as shareholders do, but can outweigh the shareholders in practice, especially if the corporation is experiencing financial difficulties and cannot survive without credit. Members of a corporation are said to have a "residual interest." Should the corporation end its existence, the members are the last to receive its assets, following creditors and others with interests in the corporation. This can make investment in a corporation risky; however, the risk is outweighed by the corporation's limited liability, which ensures that the member will only be liable for the amount they contributed.