What Are the Forms of Business Organization

What Are the 4 Major Business Organization Forms?

Companies are usually best able to attract capital because investors are assured that their liability will be limited. Many states require owners to pay annual reporting fees, franchise taxes and other miscellaneous fees.

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It’s known as the “theory of integration” in the Canadian tax system. Describe the sole proprietorship and partnership forms of organization, and specify the advantages and disadvantages. An attractive advantage of any form of corporation is that it limits the shareholders’ liability to the amount they have invested. Dividends may be paid and may have tax advantages, Personal assets are never exposed to the liabilities of the company. Many businesses begin as sole proprietorships, as this type of business is great for many new, small businesses.

Pros and Cons of Sole Proprietorship

One type of a business organization is a sole proprietorship which is owned and operated by one person. Secondly, a partnership is formed by two parties who combine resources to establish a business entity. The last type of a business organization is a corporation, owned by, but separate from shareholders. Partners in a general partnership, share legal and financial liabilities https://online-accounting.net/ equally. On the other hand, the partners’ personal liability is limited under a limited liability partnership , a standard structure for professionals like accountants and lawyers. Finally, a limited partnership is a hybrid between the previous two types. In this arrangement, one party is a general partner with total liability while the other is a silent partner.

  • An entrepreneur desiring to pocket all the profits of business will naturally prefer sole proprietorship.
  • Different types of securities may be issued to attract various types of investors.
  • Companies are usually best able to attract capital because investors are assured that their liability will be limited.
  • Also, the business structure comes with limited personal liability, offering the owners protection against debts, liabilities, and obligations of the business.
  • The general partner has unlimited personal liability, even though he or she is often the partner with the least personal resources.

The death, insolvency, incapacity or the retirement of any partner bring the firm to an end. Not only that any dissenting partner can give notice at any time for dissolution of partnership. OPC would provide the start-up entrepreneurs and professionals the much needed flexibility in setting up business without losing control.


In these types of companies, the shareholders, officers and directors are required to make decisions about the direction and execution of business operations via formal votes. These votes and meetings occur regularly and must be properly recorded in corporate minutes. When deciding which business organization type to form, you should consider ownership structure, tax rules and other financial elements. Many first-time business owners look to people like Bill Gates, Oprah Winfrey, or Ben & Jerry and aspire to their level of wealth and success. How a business’s profits are shared is determined by the legal structure. Some owners are willing to share the profits in exchange for assistance and support establishing and running the business. Other business owners make the conscious decision to limit the scope and nature of the business to avoid having to bring in others, thereby retaining all of the income themselves.

  • There is less flexibility of operations because an LLP has to comply with certain legal formalities.
  • But an unregistered firm suffers from some limitations which make it virtually compulsory to be registered.
  • A company is managed by a small number of people who are able to perpetuate their reign year after year due to lack of interest, information and unity on the part of shareholders.
  • Registered shares only, of a minimum par value of TRY 25 each.
  • The shareholders must report their income on their individual income tax returns.
  • Central Bank of Ireland must approve all registrations of UCITS.

Limited partnerships consist of two kinds of partners- general partners and limited partners. General partners have the same rights, powers, and liabilities as partners in ordinary general partnerships.

Unlimited Liability and the Partnership

If wound up, liability does not exceed amount specified in memorandum. If a guarantee company does not have a share capital, members are not required to buy shares . Even when it is permitted by the Memorandum, it might have to be endorsed by the shareholders at the general meeting of the company.

What Are the 4 Major Business Organization Forms?

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V. Maintenance of Business Secrets – The business secrets are known only to the proprietor. He is not required to disclose any information to others unless and until he himself so decides. Quick Decision and Prompt Action – Nobody interferes in the affairs of the sole proprietary organisation.

A corporation is a group of people united for a specific purpose. This business organization type operates as a separate, legal body led by a board of directors. The board is elected by shareholders, otherwise known as the owners of the corporation.

Companies such as Crayola, Domino’s Pizza, Ritz-Carlton Hotel Company, and iSold It are operating under the limited liability form of organization. In Ontario, an incorporated business pays a tax rate of 15 per cent on the first $500,000 of income each year, thanks to the small business tax deduction, and 26.5 per cent for anything beyond that. A lower tax rate is one of the key advantages to incorporating a business. However, accountants make the distinction that the taxes aren’t being saved, but instead deferred. That’s because, when the money is taken out of the corporation for personal use, through salary or dividends, the individual winds up paying approximately the same tax rate as if they were a sole proprietor.

In UAE Free Zones, a Free Zone Establishment or Free Zone Company is a limited liability company governed by the rules and regulations of the relevant zone in which it is established. Şti (Komandit şirket) ≈ Commandite partnership Can be established as simple commandite What Are the 4 Major Business Organization Forms? partnership or as commandite company divided into shares (Sermayesi paylara bölünmüş komandit şirket). Partnerships are generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of the other partner.

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