Primary Types of Business Organizations

  • Print Article |
  • Send to a Friend |
  • |
  • Add to Google |

There are three main types of business organizations:

(a) Sole Proprietorship 
(b) Partnership 
(c) Corporation 

Sole Proprietorship 

In a sole proprietorship, an individual on his/her own account carries out the business or profession. No formal procedure is required for setting up a sole proprietary concern. 

Partnership

A partnership is a business relationship entered into by a formal agreement between two or more persons or corporations carrying on a business in common. The capital for a partnership is provided by the partners who are liable for the total debts of the firms and who share the profits and losses of the firm according to the terms of their agreement.

Partnerships (other than banking companies) are generally limited in size to twenty partners. The interest of a partner is transferable only with the prior consent of the other partner(s). However, a partner's right to a share of the partnership income may be received in trust for another person.

Generally they are formed to pool resources and/or to retain experienced and talented employees. 

Corporation

A corporation is a legal entity that has most of the rights and duties of a natural person but with perpetual life and limited liability. Shareholders of a corporation appoint a board of directors and the board of directors appoints the officers for the corporation, who have the authority to manage the day-to-day operations of the corporation. Share holders are generally liable for the amount of their investment in corporate stock and their personal property is immune from claims against the corporation-thus, their liability is limited.  

A corporation pays its own taxes and shareholders pay tax on their dividends. The corporation is its own legal entity and can survive the death of its owners and shareholders. A corporation is the best entity for eventual public companies. Corporations can raise capital 

through the sale of stock and stockholders are free to transfer their ownership. Corporations hold annual meetings and require directors to observe certain formalities. They are more expensive and complicated to form and require periodic filings with the state and also require annual fees. 
 
Private corporations can only sell their stock privately, though, there may be some restrictions on the number of their stockholders.  In case of a subchapter S corporation, shareholders report  

their share of corporate profit or loss in their individual tax return.  There are several other variations of corporations formed under the laws of the state where they are registered. 

There are more than 3 million corporations in the U.S.A.-largest being known as Fortune 500-which constitute about 20 percent of the total firms but more than 90 percent of total sales. There are about 11 million sole proprietorships but represent only 6 percent of the sales.  Partnerships are about 1.5 in numbers and have the smallest-4 percent--share of the total sales. 

Article Rating (2 stars):
  • article full star
  • article full star
  • article no star
  • article no star
  • article no star
Rate this Article:
  • Article Word Count: 454
  • |
  • Total Views: 3458
  • |
  • permalink
  • Print Article |
  • Send to a Friend |
  • |
  • Add to Google |
>