3 Types Of Business Organizations

Today, the Business Law lecture class was talking about company law. Before go deeply in the company law, we have to understand about the company organization. There are 3 types of the business organizations we were learnt in the class which are:

1. Sole Proprietorship
2. Partnership
3. Corporation

Sole Proprietorship is a least expensive and easiest method to start a business. Why it is easy to start a business? This is because we just need to find a location for the business and open the door to start the business. Before start the business, we have to register a business name and obtain a business license from the government.

There are 2 types of partnership which are limited partnerships and general partnerships. At least 2 people are needed to form a general partnership through a simple oral agreement. Yet, start a partnership with an oral agreement is not recommended. Therefore we have to get legal documents drawn up by an attorney. The advantage for having a legal partnership drawn up is the document will help us in solving any future business disputes with the partner. The disadvantage of partnership is a partner can be held responsible for the actions of other partner in the business in addition to their own actions.

Some of the important information should include in a partnership agreement:

• The compensation for partners.
• How long will the partnership last.
• How will the profits or loss be divided?
• What type of business is it?
• What is each partner investing into the business?
• If the partnership dissolves how will assets be distributed?
• A settlement clause for disputes.
• Provisions for dissolution of the partnership.
• Provisions for future changes to the partnership.
• Define any restrictions to expenditures or authority.
• Provisions for death or incapacity.

The structure of a corporation is complex. It is very expensive to operate compare to sole proprietorship and partnership. Corporate control lies with the person who has ownership of the most shares of stock. For instance, if a single stockholder or a group of stockholders own at least 51% of the stock they can make decisions of policy. Corporations will have annual meetings with the stockholders and regularly scheduled meetings for the board of directors with records kept to document their decisions. The size of the corporation will affect how formally or informally it can be operate. For example, smaller corporations might operate less formally, but still need to keep proper documentation. Stockholders can hold officers of corporations liable for any actions which might have been improper. In those kinds of cases stock ownership is generally where the liability is limited to unless there was a fraud committed. An attorney can help us to decide incorporate as either a C or S type corporation.

Prepared by,
Fong Yok Yan (1071120015)