Different Forms Of

BUSINESS ORGANIZATIONS
By: Ma. Beatrix D. Sampang
BSA – 4
 INTRODUCTION
A business can be organized in one of several ways,
and the form its owners choose will affect the
company's and owners' legal liability and income tax
treatment. Here we’ll discuss the most common
options and their major defining characteristics.
 TYPES
 Sole Proprietorship
 Partnership (General & Limited)
 Corporation
 Limited Liability Company (LLC)
SOLE PROPRIETORSHIP
 A sole proprietorship is a business owned and
operated by one individual.
 Sole proprietorships own all the assets of the business
and the profits generated by it. They also assume
complete responsibility for any of its liabilities or
debts. In the eyes of the law and the public, you are
one in the same with the business.
Advantages of Sole Proprietorship
 Easy to start
 No registration
 No profit sharing
 Easy decision-making
 Complete Control
Disadvantages of Sole Proprietorship
 Unlimited liability
 Employee benefits such as owner’s medical
insurance premiums are not directly deductible
from business income (taxes)
 Raising funds
 Limited Life
 Loss in absence
PARTNERSHIP
 A Partnership is a legal relationship formed by the
agreement between two or more individuals to carry
on a business as co-owners.
 Each member of such a group is individually known as
‘partner’ and collectively the members are known as a
‘partnership firm’.
Characteristics of Partnership
1. Number of Partners: Maximum limit is 10 in case of
banking business and 20 in case of all other types of
business.
2. Contractual Relationship: The agreement in writing
is known as a ‘Partnership Deed’.
3. Competence of Partners: Minors and insolvent
persons are not eligible.
4. Sharing of Profit and Loss: In absence of an
agreement, they share it equally.
5. Transfer of Interest: No partner can sell or transfer
his interest in the firm to anyone without the consent
of other partners.
6. Voluntary Registration: Registration of partnership is
not compulsory. But since registration entitles the
firm to several benefits, it is considered desirable.
Advantages of Partnership
 Relatively easy to start.
 The ability to raise funds.
 More skilled persons.
 Loss sharing.
 No loss in absence.
Disadvantages of Partnership
 Unlimited liability.
 Profit sharing.
 Conflicts
 Limited life.
 Transferability is difficult.
CORPORATIONS
 A Corporation, chartered by the state in which it is
headquartered, is considered by law to be a unique
entity, separate and apart from those who own it.
 A Corporation can be taxed; it can be sued; it can
enter into contractual agreements. The owners of a
corporation are its shareholders. The shareholders
elect a board of directors to oversee the major policies
and decisions. The corporation has a life of its own and
does not dissolve when ownership changes.
Advantages of Corporations
 Limited Liability.
 Transfer of ownership by sale of stock.
 Easier to raise capital through shares & bonds.
 Continuity of existence.
 Benefits of large scale operation.
 Professional Management.
 Social Benefit.
Disadvantages of Corporations
 Formation is not easy.
 Control by a Group.
 Many Legal Formalities.
 Excessive government control.
 Delay in Policy Decisions.
Limited Liability Company
 An LLC is a limited liability company. This business structure
protects the owner's personal assets from financial liability and
provides some protection against personal liability.
 It is designed to provide limited liability features of a
corporation and the tax efficiencies and operational flexibility of
a partnership. Formation is more complex and formal than that
of a general partnership.
 LLC’s must not have more than two of the four characteristics
that define corporations: Limited liability to the extent of assets;
continuity of life; centralization of management; and free
transferability of ownership interests.
Advantages of LLC
 Limited Liability.
 Tax Flexibility.
 Less Paperwork.
 Investment allocation flexibility.
 Freedom in management.
 Limitless ownership.
Disadvantages of LLC
 Higher registration fees.
 Government regulation.
 Lack of case law.
 Limit on Building capital.
 Self-Employment Taxes