Professional Documents
Culture Documents
In order to do business, you should register your business with the appropriate
authorities. To do this, you first need to decide which legal form of organization is
suitable for your business. In business, there are many legal forms of organizations. Each
form has certain advantages and disadvantages. The four forms discussed in this lesson
are limited liability company, joint-stock company, partnership and private enterprise.
A limited liability company (LLC) with more than one member is an enterprise in
which members can be organization(s) and/or individual(s), and the total number of
member is no more than fifty. Members, are responsible for debts and other liabilities of
the enterprise within the amount of capital that they committed to contributing to the
enterprise. It is given a legal status from the issung date of the business registration
certificate and is not entitled to issue share. The limited liability company with more than
one member is in contrast to a sole member limited liability company which is an
enterprise owned by one organization or individual. The company owner is liable for
debts and other obligations of the company within the charter capital. Like the limited
liability company with more than one member, this types of company is prohibited from
offering shares. Both of the two types of limited liability companies are given legal status
from the issuing date of the business registration certificate.
A joint-stock company is an enterprise in which charter capital is divided into
equal portions known as shares. Shareholders can be organization or individuals. The
minimum member of shareholders is three and there is no restriction on the maximum
number of shareholders. Shareholders are liable for debts and other liabilities of the
company within the amount of the capital that they contributed. They are free to transfer
their shares. The joint-stock company is given a legal status from the issuing date of the
business registrazation certificate. It is entitled to issue securities for the purpose of
capital mobilization. The joint-stock company must issue ordinary shares. Owners of
such shares are referred to as ordinary shareholders. It can also issue, preference shares.
Owners of preference shares are referred to as preference shareholders. Preference shares
include: voting preference share, dividend preference share, redeemable preference share
and other types of preference share as stipulated in the company charter. Voting
preference shares can be owned only by government-authorized organizations and
founding shareholders. Preference of voting will be effective for three years from the
issuing date of the business registration certificate. After that, voting preference shares
of founding shareholders will be converted into ordinary shares. However, ordinary
shares are not entitled to convert into preference shares. Persons who are entitled to buy
dividend preference shares, redeemable preference shares or other types of preference
shares will be stipulated in the company charter or decided by the Shareholders’ General
Meeting. Shareholders of the same type will be given the same rights, interests and
obligations.
A partnership is a business in which two or more people own a company, work
together and share the profits or losers on an agreed basis. The partnership should begin
with a legal agreement covering the various aspects of the business: how decisions will
be made, profits will be shared, disputes will be resolved and how future partners will be
admitted to the partnership. Two important items that need to be covered are exactly
which assets each partner has to contribute as well as how the partnership can be
changed or terminated. This agreement is called the articles of co-partnership. The
partnership is not permitted to issue any type of securities and is given legal status from
the issuing date of the business registration certificate. There are some types of
partnerships. A general partnership is the partnership formed with only general partners.
That is, each partner is involved in the day-to-day operations of the business and he bears
personal responsibility for the liabilities of the partnership. The general partnership is in
contrast to a limited partnership which has at least one general partner with unlimited
liability and one limited partner with limited liability. The limited partnership is not often
used for operating retail or service businesses. Forming the limited partnership is more
complex and formal than that of a general partnershi.
A private enterprise is a business owned and operated by a single person. This
single person can start a business by simply purchasing the necessary goods and
equipment and opening up a shop. There are very few government and legal regulations
to comply with. The private enterprise owner owns all the assets of the business, but he
also has to supply all the capital, and his ability to borrow is limited to his personal
amount of money and wealth. The owner enjoys his freedom to make decisions about his
business, but he alone takes the responsibility for incorrect choises. He has the right to
keep all the profit of the business. However, if he suffers a loss, he still owns all the debts,
and his legal liability to pay them may be more than his investment in the business. He
must use his personal property to settle the debts of the business if he goes bankrupt. The
private enterprise is not permitted to issue securities. One individual is only permitted to
establish one private enterprise.
The four types of legal organizations discussed in this lesson show different
strengths and weaknesses. The best form for a particular enterprise mainly depends on its
capital requirements and the number of owners.