 | UNINCORPORATED BUSINESS: TE SOLE PROPRIATORSHIP AND THE PARTNERSHIP |
Ch.3 UNINCORPORATED BUSINESS: TE SOLE PROPRIATORSHIP AND THE PARTNERSHIP
Ownership of a business organization may take many different legal forms, each of which carries certain privileges and responsibilities. The three most prevalent forms are the sole (or single) proprietorship – one person as an individual owner, the partnership (joint ownership), and the corporation (stockholder ownership).
The following considerations are of critical importance when planning for business: (1) capital needs, (2) legal status of the firm, (3) transferability of ownership, (4) the owner’s liability for a debts, (5) ease of organization and dissolution, (6) government regulations, and (7) continuity of ownership.
The Sole Proprietorship is the most common form of business in the US as well as in many countries for the small shop keeping. This form is ideally suited for small business. According to the Statistical Abstract of the US 1980, 11,358,000 sole proprietorships represent 78% of all the business firms in US. However, although this type dominates in numbers, it does only 10% of the dollar volume of all business transactions. The Sole Proprietorship is known as an unincorporated or common law form because no permission from federal, state, or local government is required. Only the law of contract and sales governs the Sole Proprietorship. Thus, there is no legal distinction between the business and the individual, and it is as being one and the same.
Advantages:
1. Easy of organization and dissolution
2. Secrecy
3. Excellent credit standing
4. Tax savings
5. Freedom of flexibility
6. Personal satisfaction
7. Ownership of all profits
Disadvantages:
1. Unlimited liability
2. Lack of continuity
3. Difficulties of management
4. Limited financial resources
5. Lack of opportunity for employees
THE PARTNERSHIP
A partnership, as defined by the Uniform Partnership Act, “is an association of two or more persons to carry on as co-owners of a business for a profit.” The partnership ranks a poor third and produce the smallest dollar volume of business in the US. It usually has only two or thee members. Partnerships are comparatively free from government regulation and restrictions, although some states impose various regulations by the IRS. In its inception, however, no government permission is necessary.
Advantages:
1. Easy of organization and dissolution
2. Secrecy
3. Highest credit standing
4. Tax savings
5. Easy of expansion
6. Employee incentive
7. Management benefits
Disadvantages:
1. Unlimited liability
2. Lack of continuity
3. Complicated decision making
Articles of Co partnership
Because the partnership is a voluntary association of individuals, each partner usually contributes capital, labor, skills to the firm. The agreement can be oral or written). The written agreement is known as the article of copartnership with date of the contract, name of the business and partners, nature of the business, location and duration of the business, investment made by each person, distribution of profits and losses, salaries and withdrawals of partners, duties, obligations, and restrictions of partners, and procedures for dissolution of the partnership. If no such agreement is drawn, the law provides equal basis.
Types of Partners:
General partner – who can sign documents
Limited partner – not permitted an active part in the management of firm.
Silent partner does not take an active role in the business, but known to the public.
Secret partner does take an active role, but unknown to the public as a member of the firm.
Types of Partnership
The Limited Partnership (limited partners has no voice in the active management, but share profit according the agreement)
Joint Venture is when partners join together for the purpose of a single transaction. During the period of business, each partner has the same legal position as a general partner.
Syndicates formed for a particular financial transaction. Interest in the syndicate may be sold to another individual who then assumes the risks and obligations of the former owner.
Personal property
Real property
