Forms of Business Organization in the United States

1. Forms of Business Organization in the United States

2. Principal forms • Sole proprietorship • Partnership • Corporation

3. Sole proprietorship • Also called individual ownership – a business owned by one person (arestaurant, a retain 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

4. 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

5. 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

6. 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

7. 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)

8. 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

9. Partnership - advantages • Ease of formation • Low start-up costs • Additional sources of investment • Broader management base

10. Partnership - disadvantages • Unlimited liability for general partners • Lack of continuity • Capital divided authority • Possible conflicts between partners

11. 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

12. Types of corporations • Private business corporations – the Articles of Corporation • 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)

13. The Articles of Incorporation • The document that sets out the rules for running the company’s internal affairs • Includes the names of the incorporators (the responsible parties), the amount of stock it will be authorized to issue and its purpose • Determines the rights asnd obligations of members and directors • Shareholders elect a board of directors

14. 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

15. Disadvantages • Closely regulated • The most expensive form to organize • Extensive record keeping necessary • Higher taxation (double taxation of dividens, larger business tax rates)

16. Corporations in the USA • Out of all business organization forms, corporations amount only to 20 percent • They do 80 percent of the busines in the country

17. Vocabulary • Sole proprietorship – pojedinačno vlasništvo • Creditor - vjerovnik • Retail store – dućan s maloprodajom • Artificial person – pravna osoba • Limited liability – ograničena odgovornost • Transferability of shares – prenosivost dionica

18. Complete the following: • The sole proprietor has ________ control over the business. • In a partnership, profits and losses are shared ________ unless otherwise agreed. • One of the attributes of a corporation is _______ liability.

19. 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.

20. Thank you for your attention!