Forms of Business Organization in

the United States

 FACEBOOK GOING PUBLIC

Mark Zuckergburg founded facebook

in his college dorm room in 2004.
Facebook had grown quickly since its
founding to over 900 million users all
across the world.
The site is a directory of the world’s
people, and a place for private citizens
to create public identities.
 FACEBOOK GOING PUBLIC

Facebook’s business model depends

on our shifting notions of privacy,
revelation and sheer self-display. The
potential to monetize its tremendous
user base had caught the fancy of
investors. The dramatic growth in users
had resulted in substantial revenue and
income growth as well.
 FACEBOOK GOING PUBLIC
The site is now the biggest social
network globally. In April 2012 , Facebook
bought Instagram, a photo sharing social
networking site for $1 billion. In May
2012, Facebook “went public” that is, it
sold shares of stock to the public in what
is called an Initial Public Offering (IPO). Of
the shares being offered, facebook Inc.
was selling 180 million shares and the
remaining 157 million shares were being
offered by existing shareholders.
 FACEBOOK GOING PUBLIC

What form of organization,

then, is Facebook now, and
what was it prior to its IPO?
Principal forms

 Sole proprietorship (inidividual

ownership)
 Partnership (association of persons)
 General partnership
 Limited partnership
 Corporation (association of capital)
 C-corporation
 S-corporation
Sole proprietorship

 Also called individual ownership – a

business owned by one person (a
restaurant, a retail store, a farm
etc.)
 The owner has unlimited control
over the business and enjoys all the
profits
 The owner also has unlimited
personal responsibility for the losses
and debts
Sole proprietorship - advantages

 The simplest way to set up a

business – low start-up costs
 Less administrative paperwork
 Owner in direct control of decision
making
 Minimal working capital required
 All profits to the owner
Disadvantages
 Owner fully responsible for all debts
and obligations related to his or her
business
 Creditor would normally have a
right against all of his or her assets,
business or personal (unlimited
liability)
 Difificult to raise capital
 Lack of continuity in business
organization in the absence of the
owner
Partnership

 A partnership is an agreement in
which two or more persons combine
their resources with a view to
making a profit
 A partnership agreement should be
drawn up
Partnership agreement

 The legal document that defines

each person’s rights and
responsibilities, as well as
provisions for running the company,
both day-to-day and in the event
that someone dies or the company
dissolves.
Partnership agreement – cont.

It should address the following

issues:
 Decision-making

 Capital contribution

 Salaries/distribution

 Death/disability

 Dissolution
General partnership

 All members share the management

of the business
 Each member is personally liable for
all the debts and obligations of the
business
 Each partner must assume the
consequences of the action of other
partner(s)
Limited partnership
 Some members are general partners who
control and manage the business and
may be entitled to a greater share of the
profits
 Other partners are limited and contribute
only capital, take no part in management
and are liable for debts to a specified
extent only
 A legal document, setting out specific
requirements, must be drawn up
Partnership - advantages

 Ease of formation
 Low start-up costs
 Additional sources of investment
 Broader management base
Partnership - disadvantages

 Unlimited liability for general

partners
 Lack of continuity
 Capital divided authority
 Possible conflicts between partners
Corporation - definitions
 A legal entity that is separate from
its owners, shareholders
 An artificial person created under
law and empowered to achieve a
specific purpose
 An organization formed with the
state governmental approval to act
as an artificial person to carry on
business (or other activities) for
profit
 A separate legal entity owned by
shareholders and ruled by a board
of directors who elect officers to do
day to day management.
Types of corporations
 Private business corporations
 Non-profit corporations (for religious,
educationsal, charitable purposes)
 Public corporations (formed by
governments for public purposes)
 Close corporations (a few shareholders
with a working or familial connections
permitted to operate informally)
Corporation - advantages
 Perpetual life (succession) – continuous
existence
 Limited liability (shareholders protected
from personal claims)
 Access to capital – easier to raise capital
 Transferability of shares (or of ownership)
– shares can be bought, sold, exchanged
or given
 Professional, specialized management
Disadvantages

 Closely regulated
 The most expensive form to
organize
 Extensive record keeping necessary
 Higher taxation (double taxation of
dividens, larger business tax rates)
 The sole proprietor has UNLIMITED
control over the business.
 In a partnership, profits and losses
are shared EQUALLY unless
otherwise agreed.
 One of the attributes of a
corporation is LIMITED liability.
Translate the following:

 Each business form has its own

advantages and disadvantages. It is
selected by people contemplating
the formation of a business from
the standpoint of financial
responsibility, control of operation,
possibilities of growth and
expansion, and the possibilities of
capitalization and financial
development.
Thank you for your attention!
The Different Examples of
Corporations