Chapter 4 Forms of Business Organisation - I
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Information on OC & Management
In commerce, the term "types of business" refers
to the various forms or structures that businesses can take. These structures
determine how businesses are owned, operated, and regulated. The main types of
business structures include:
1. Sole Proprietorship:
• Ownership:
Owned and operated by a single individual.
• Liability:
The owner has unlimited personal liability for the business's debts and
obligations.
• Taxation:
Business income is reported on the owner's personal tax return.
2. Partnership:
• General
Partnership:
• Ownership:
Owned by two or more individuals who share management and profits.
• Liability:
Each partner has unlimited personal liability for the business's debts.
• Taxation:
Profits and losses are passed through to the partners' personal tax returns.
• Limited
Partnership (LP):
• Ownership:
Includes both general and limited partners.
• Liability:
General partners have unlimited liability, while limited partners have
liability limited to their investment.
• Taxation:
Similar to a general partnership.
• Limited
Liability Partnership (LLP):
• Ownership:
Similar to a general partnership.
• Liability:
Provides limited liability protection to all partners.
• Taxation:
Profits and losses are passed through to partners' personal tax returns.
3. Corporation:
• C
Corporation (C Corp):
• Ownership:
Owned by shareholders.
• Liability:
Shareholders have limited liability for the corporation's debts.
• Taxation:
Subject to corporate income tax, and dividends are taxed on shareholders'
personal returns (double taxation).
• S
Corporation (S Corp):
• Ownership:
Similar to a C Corp but with restrictions on the number and type of
shareholders.
• Liability:
Shareholders have limited liability.
• Taxation:
Profits and losses pass through to shareholders' personal tax returns, avoiding
double taxation.
4. Limited Liability Company (LLC):
• Ownership:
Can be owned by one or more individuals or entities (members).
• Liability:
Members have limited liability.
• Taxation:
Can choose to be taxed as a sole proprietorship, partnership, or corporation.
5. Cooperative (Co-op):
• Ownership:
Owned and operated by a group of individuals for their mutual benefit.
• Liability:
Liability varies depending on the cooperative structure.
• Taxation:
Profits are distributed among members and taxed on their personal returns.
6. Nonprofit Organization:
• Ownership:
Operated for a charitable, educational, or other purpose that benefits the
public.
• Liability:
Limited liability for directors and officers.
• Taxation:
Exempt from federal income tax but must adhere to specific regulations and
reporting requirements.
Each type of business structure has its own advantages and disadvantages, and the choice of structure depends on various factors, including the nature of the business, the number of owners, liability concerns, and tax considerations.