LEGAL FORMS OF BUSINESS

CONTENT

Content…………………………2

Introduction………………………..3

Sole proprietorship………………………4

Partnership…………………………5

Corporation…………………………6

Business structure and organization………………..7

Conclusion………………………..10

Sources 11INTRODUCTION

New business planners do some serious thinking about what legal form to choose for their new endeavour. This means determining what status the business will be in the eyes of the law. The choice has very important consequences.

3 legal forms are available:

a) Sole proprietorship,

b) Partnership,

c) Corporation.SOLE PROPRIETORSHIP

Sole trader businesses are the easiest to set up because there is no complex paperwork It is a business owned and operated by one person. All assets are oowned by the proprietor, but he/she faces the unlimited liability- if a business fails the owner personally assumes the debts and any losses incurred and is solely responsible for all risks. He/she provides most of the capital as well as total management .The money he can raise is limited by the amount of his savings and ability to borrow. If you have all the skills and sufficient capital necessary to operate your business then you should consider this form. The oonly requirement is to obtain a license required by the state. Sole Proprietorships are probably the simplest and cheapest forms of business organization.PARTNERSHIP

It is usually defined as an association of 2 or more persons as co-owners. Liability for the debts iin a partnership is unlimited, which means that each of the partners is personally liable for all debts of the firm. This amount could very easily be in excess of the amount invested in the business. Great care should be taken in deciding on a partner. Compatibility, personality, character as well as ability to give technical or financial assistance will have a marked effect on the success or failure of a partnership. Partnerships are based upon a written partnership agreement as many circumstances, which cannot be foreseen and therefore must be anticipated, arise. The agreement should cover all areas of possible disagreement among the partners: the authority and its limits, rights and duties of each partner should be defined, ways tthe profits and losses are to be divided, payment for services rendered, interest on capital investment.

.CORPORATION

Companies are separate in law from the individual owners (shareholders) of the business. This means that should the business run up debts the shareholders are only liable for these debts up to the sum they have contributed to the company. A number of Companies Acts have been passed setting out ways in which companies should conduct their affairs. To register as a company various ddocuments must be registered at Companies House including a Memorandum and Articles of Association setting out internal relationships within the company, and external relationships with third parties. A public company can only start trading and sell shares on the Stock Exchange once it has carried out all the required paperwork.

A private company does not sell its shares to the wider public. Shares can only be traded with the permission of the Board of Directors. In contrast, public company shares are generally available through the Stock Exchange. A private company will have Ltd after its name and a public company PLC.

Public companies are obliged in law to have an Annual General Meeting of shareholders. The Companies Acts set out the power and responsibility of directors. Public companies have a number of legal obligations such as to produce an annual report and statement of accounts. There are far more formalities and paperwork associated with setting up a public rather than a private company.

Business structure and organisation

Every organisation made up of more than one person will need some form of organisational structure.

An organisational chart shows the way in which the chain of command works within the organisation.

The way in which aa company is organised can be illustrated for a packaging company. The company will be owned by shareholders that choose directors to look after their interests. The directors then appoint managers to run the business on a day-to-day basis. In the company structure outlined below:

The Managing Director has the major responsibility for running of the company, including setting company targets and keeping an eye on all departments.

The Distribution Manager is responsible for controlling the movement ...