Entrepreneurship 110Legal Forms of Business

3 Main FormsThe three main legal forms of business are:

- sole proprietorship

- partnership (general and limited)

- corporation

1. Sole Proprietorship A sole proprietorship is a business owned by one person. It is the oldest, simplest and most common form of business. The business and individual are not recognized as separate by

law – you are the business.

Advantage Disadvantage- You are in complete control of the business and get to make all decisions.

- It may be more difficult to obtain all of the financing you need.

2. PartnershipsGeneral Partnership- Two or more

people own the business.

- Ownership and authority are shared evenly between all partners (perhaps 50/50).

Advantage Disadvantage

- You can pool resources, including skills and resources (i.e. Finances).

- Less control. You give up some of the control over decision making when you enter into a partnership.

PartnershipsLimited Partnership- Two or more people

own the business.- Ownership for each

partner is limited to the amount that was invested in the company by each partner.

- Legally, there must be at least one general partner who has unlimited authority.

Advantage Disadvantage

- You can pool resources, including skills and resources (i.e. Finances).

- Only the general partners have decision making authority.

Partnership AgreementsTypically include:- Name of partners- Name of business- Amount of capital invested by each partner- Outline of each partner’s responsibilities and what

each can and cannot do without the approval of the other partners.

- Procedures for termination of the partnership- Procedures for dispute resolution among partners- Etc.

3. Corporations Most formal and complex form of business Unlike with a sole proprietorship or partnership,

corporations are separate legal entity from its owners – legally it is regarded as a “person.”

YouTube - THE CORPORATION [3/23] A Legal "Person"

It can own property and other assets, it can sue or be sued, and it files its own tax return.

Ownership happens through the purchase of shares or stocks which can be held by as many as thousands of people.

ContinuedAdvantage Disadvantage

-The shareholder is only liable for the amount he or she paid for shares.-In case of bankruptcy creditors are not able to sue shareholders for outstanding debts of the business

- Cost. Expensive to start (incorporation may cost more than $1000 and lawyer fees may exceed $300

What is a CEO? Chief executive officer; the corporate

executive responsible for the operations of the business

Individual responsible for the overall operations of a corporation

The CEO is ultimately responsible for the success or failure of the business. He or she provides overall strategic direction for the business

The “Corporate Agenda” There is distrust among many North Americans of

the “corporate world.” This is a result of many factors, including:

The size of many of today’s corporations and how far removed they have become from “the people”

Corporate scandals Lack of ethics among corporations THE CORPORATION [1/23] What is a Corporation? THE CORPORATION [2/23] Birth THE CORPORATION [5/23] Case Histories