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¶ … Legal Terms
Sole proprietorship- In a sole proprietorship, one person owns all of the business assets and is the sole decision maker. The sole proprietor has unlimited personal liability for business debts, and all profits and losses pass through the business to the owner (Bouchoux, 2007).
General partnership- In a general partnership two or more people co-own all business assets and share decision-making power. Each partner has unlimited personal liability for business debts, and can be subject to pass-through taxation (Bouchoux, 2007).
Limited partnership- In a limited partnership one or more general partners have unlimited personal liability for business debs and obligations, but limited partners do not manage or control the enterprise and are only liable up to the amount of their investment in the company. Limited partnerships must be created according to state laws (Bouchoux, 2007).
Registered Limited Liability Partnership- Partners in this type of partnership are not liable for the torts or misconduct of their partners. It combines features of a partnership and a corporation and must be established according to applicable state laws (Bouchoux, 2007).
Limited Liability Company- A registered limited liability company combines the features of a partnership and a corporation. Owners have limited liability; it has pass-through taxation, and must be established in compliance with applicable state statutes (Bouchoux, 2007).
Business corporation- A business corporation is a for-profit entity created by state law, and it is a fictional person that may own property, sue and be sued, and is subject to taxation. Shareholders own stock in the company, and their liability is limited to the share of the stock that they own (Bouchoux, 2007).
Professional corporation- A professional corporation refers to a corporation formed by professionals like doctors, lawyers, accountants, and engineers. While it may provide them with some of the benefits of a business corporation, the important difference is that these individuals remain personally liable for their own negligence and employee negligence (Bouchoux, 2007).
S Corporation- S corporations are small business corporations that are exempt from double taxation because income is subject to pass-through taxation. S corporations must comply with IRS regulations, cannot have more than 100 shareholders, and all shareholders must agree to S. status (Bouchoux, 2007).
Close corporation- A close corporation is a corporation owned by a limited number of individuals, usually...
Shareholders are active in operating the business, and they have more leeway than in a traditional corporate structure (Bouchoux, 2007).
Considerations in Selection of Business Enterprise- There are various factors to consider when looking at the selection of a business enterprise, and they will be explored below (Bouchoux, 2007).
Ease of formation of a company- One factor that goes into choosing what type of company to form is how easy it is to form the company. Some companies are sufficiently difficult and expensive to form that they are impracticable for small companies (Bouchoux, 2007).
Management-When determining the type of business enterprise, it is important for a person to determine how much control he wants over the company. The greater the personal control, generally the greater the personal liability (Bouchoux, 2007).
Liability and financial risk- Liability is another factor to consider when looking at the selection of a business enterprise. Financial exposure is critical when forming a business enterprise, because clients must be informed of the potential liability consequences of each type of business (Bouchoux, 2007).
Continuity of existence- Some types of business enterprises such as corporations can continue in perpetuity, while others will be limited to the lifetime of the founder, therefore looking at the desired duration is important when developing a business entity (Bouchoux, 2007).
Transferability- When forming a business with other people, it is important for clients to look towards the future and examine how easy it would be to get out of the partnership. General partnerships are more difficult to transfer than ownership in a corporation (Bouchoux, 2007).
Profits and losses- Different business entities pass along profits and losses to their owners in different ways. Sole proprietors are responsible for all losses and entitled to all profits. While partnerships minimize potential losses, they also introduce ways to increase liability (Bouchoux, 2007).
Taxation- One must consider individual and corporate tax rates for the people seeking to establish a corporation when determining the appropriate business entity (Bouchoux, 2007).
Agency relationship- An agency relationship is created when one person acts as the agent for another person or for a business, so that the agent's actions create liabilities for the business (Bouchoux, 2007).
Express agency- Express agency is established through an agreement that establishes the rights and…
References
Bouchoux, D. (2007). Business organizations for paralegals. New York, NY: Aspen
Publishers.
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