JS

Different Forms Of

BUSINESS
ORGANIZATIONS
 INTRODUCTION

A business can be organized in one of several

ways, and the form its owners choose will
affect the company's and owners' legal
liability and income tax treatment. Here
we’ll discuss the most common options and
their major defining characteristics.
 TYPES

Sole Proprietorship
Partnership (General & Limited)

Corporation

Limited Liability Company (LLC)

 SOLEPROPRIETORSHIP

A sole proprietorship is a business owned and

operated by one individual.

Sole proprietorships own all the assets of the

business and the profits generated by it. They also
assume complete responsibility for any of its
liabilities or debts. In the eyes of the law and the
public, you are one in the same with the business.
AdvantagesofSoleProprietorship
 Easy to start
 No registration
 No profit sharing
 Easy decision-making
 Keep Secrets (business techniques)
 Complete Control
 DisadvantagesofSole
Proprietorship
 Unlimited liability
 Employee benefits such as owner’s medical
insurance premiums are not directly
deductible from business income (taxes)
 Raising funds
 Limited Life
 Loss in absence
 PARTNERSHIP

A Partnership is a legal relationship formed by

the agreement between two or more individuals
to carry on a business as co-owners.

Each member of such a group is individually known

as ‘partner’ and collectively the members are known
as a ‘partnership firm’.

These firms are governed by the Indian Partnership Act, 1932.

 Characteristicsof Partnership

1. Number of Partners: Maximum limit is 10 in case

of banking business and 20 in case of all other
types of business.

2. Contractual Relationship: The agreement in

writing is known asa‘Partnership Deed’.

3. Competence of Partners: Minors and insolvent

persons are not eligible.
 … CharacteristicsofPartnership

4.Sharing of Profit and Loss: In absence of an

agreement, they share it equally.

5.Transfer of Interest: No partner can sell or transfer

his interest in the firm to anyone without the
consent of other partners.

6.Voluntary Registration: Registration of partnership

is not compulsory. But since registration entitles the
firm to several benefits, it is considered desirable.
 AdvantagesofPartnership

 Relatively easy to start.

 The ability to raise funds.
 More skilled persons.
 Loss sharing.
 No loss in absence.
 Disadvantagesof Partnership

 Unlimited liability.
 Profit sharing.
 Conflicts
 Limited life.
 Transferability is difficult.
 CORPORATIONS

A Corporation, chartered by the state in which it is

headquartered, is considered by law to be a unique
entity, separate and apart from those who own it.

A Corporation can be taxed; it can be sued; it can enter

into contractual agreements. The owners of a
corporation are its shareholders. The shareholders
elect a board of directors to oversee the major policies
and decisions. The corporation has a life of its own and
does not dissolve when ownership changes.
TypesOf Corporations
 AdvantagesofCoporations
 Limited Liability.
 Transfer of ownership by sale of stock.
 Easier to raise capital through shares & bonds.
 Continuity of existence.
 Benefits of large scale operation.
 Professional Management.
 Social Benefit.
DisadvantagesofCorporations

 Formation is not easy.

 Control by aGroup.
 Many Legal Formalities.
 Excessive government control.
 Delay in Policy Decisions.
 Limited LiabilityCompany
An LLC is a limited liability company. This business structure
protects the owner's personal assets from financial liability
and provides some protection against personal liability.

It is designed to provide limited liability features of a

corporation and the tax efficiencies and operational flexibility
of a partnership. Formation is more complex and formal than
that of a generalpartnership.

LLC’s must not have more than two of the four characteristics
that define corporations: Limited liability to the extent of
assets; continuity of life; centralization of management; and
free transferability of ownership interests.
 AdvantagesofLLC

 Limited Liability.
 Tax Flexibility.
 Less Paperwork.
 Investment allocation flexibility.
 Freedom in management.
 Limitless ownership.
 Disadvantagesof LLC

 Higher registration fees.

 Government regulation.
 Lack of case law.
 Limit on Building capital.
 Self-Employment Taxes