Forms of Business Organizations

Business organization types 7

 
forms of business organizations one of the most important decisions a business owner can make is how to legally organize or form their business and their business structure now many business owners don't have any idea what the ramifications are of a particular business form or that are even aware of the the types of the the varieties of organizations they can choose from so that's why they need the guidance of an attorney

and also tax advisers because there are huge implications for liability matters and in tax matters that the hinge on the the business choice now these business organizations are largely based on state law not federal law but state law the actual formation of the business and the rights of the owners and the investors it's a matter of state law but and there are differences from state to state and the other the main thing to

keep in mind is that all of these business forms have both advantages and disadvantages and therefore the choice of form really depends on the needs of the the owner or the owners or investors let's take a look at sole proprietor we'll be looking at just an overview of the main most common business forms first one sole proprietor sole proprietor is the simplest business form it is a business that is owned by an individual

so let's look at that word individual first an individual that's a human being a natural person we're going to deal with this word person in just a moment here so a sole proprietor is going to be a human being an individual that owns the business all by themselves not with anyone else but by selves that's why they're a sole proprietor the owner is the business the business is the owner they're one in the same it's

the simplest business form that we have and one of the downsides is is that the owner is personally liable for for the debts if the business owner is going to be doing the sole proprietor is going to be doing business in the name other than their own name if they're going to have like an assumed name or a business name even though their sole proprietor we do have to file the public record what

that business name is and who the owner of it so so if I had a hamburger stand that I want to call it Dave's hamburgers well knowing those who Dave is well I've got to follow a an assumed name form some with the County Clerk sometimes that form is called a DBA of doing business as form next next business form we're just taking a look at here is prep our tips now

a partnership is two or more people carrying on business together for profit and that's the key is its it's for profit if it's if you're not for profit then you're really not in business it's two or more so you could be two three four or more I think about large law firms for example have many partners now even though they may be called partners it's the relationship of these partners and from one business

to another is going to differ greatly because all of these partners partnerships will have be organized with something called a partnership agreement it's an agreement a contract among the partners now two or more persons what's a person you know we saw what a a an individual was on the previous board now we're talking about a person a person is going to be a much broader term it could be a natural person you know in

the term individual that we talked about before human being or it could be an artificial person an artificial entity and that's what a partnership is a partnership is an artificial entity but it's still concerned considered a person a corporation is also a person so think about it two or more persons making up the partnership you could have two corporations coming together into a partnership so that's that's why we define the word person so broadly each

part each partner in the partnership is going to be responsible personally responsible for the debts and obligations of that partnership and that's going to be one of the downsides now there's going to be several varieties of partnerships there's something we call a general partnership where all the partners are equal and in equal in in that they are all have say so in the business they all have a say so a responsibility for obligations there's

going to be something called a limited partnership where some partners are going to be called general partners and liable for the debts and other partners will have a limited liability for those debts so there's a lot more detail needs to be gone into there but but once again you have a partnership agreement that will set that out it's also called something called a limited liability partnership so these if it's going to be a

general partnership and you're going to be operating uh obviously there it's not in a person's name but they'll have some sort of business name you have to file once again an assumed name of doing business as form with the County Clerk now these other business forms limited partnership limit liability companies file those with the Texas Secretary of State to set those organizations up corporations corporations are a legal entity distinct from their owners as I mentioned

on the previous board a corporation is considered a person and we have a presidential candidate that on the campaign trail made the statement with corporations or people too and he got lambasted fort but you know what he's right corporations are a person they can be sued they can be charged with a crime they can lend money borrow money so quite they can be part of a partnership as we saw in the previous board

so a corporation is a legal entity that is distinct from its owners and its owners are called shareholders shareholders or sometimes called stockholders with shareholders and the company is is the the corporation is managed by an elected board of directors who will Alexis board directors the shareholders the shareholders have a shareholder meeting and elect a board directors in the for directors set broad policy and for the company and run it and hire people to

do the everyday affairs of the company the investors as I said before you know there's pluses and minuses to all these business forms the investors are protected from personal liability on the debts of the corporation that's one of the nice things about corporation they're protected from personal liability now there's some disadvantages though formalities formalities of filing all the paperwork with the Secretary of State to get it filed and the other formality Vantage that we won't

go into here but but just make mention of it is that notion of double taxation when the corporation makes a profit it's going to be taxed by the federal government income tax and maybe by the state - depends on the state when when they pass those profits on to the shareholders as a dividend well the shareholders going to have to pay tax - so the same profit is being taxed two times that's what we

call it double taxation now there are going to be several variations of corporation as well that will take advantage or mute some of these disadvantages or enhance some of the other advantages that we're talking about but there are several varieties of corporations then we have what is called a limited liability company and it's kind of a hybrid between a partnership and a corporation it's going to have features of both it does protect the owners

the investors from personal liability it's going to be a little bit simpler than the a full-blown corporation would be and one of the nice things about this that you can escape the double taxation that would be with corporations like I said it's kind of a hybrid between the two of a corporation and a partnership and once again you follow those documents with the Secretary of State to form that corporation that that particular business form

so this is just a very very quick overview of the various business forms that would be available to a business owner

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Business organization types 7 forms of business organizations one of the most important decisions a business owner can make is how to legally organize or form their business and their business structure now many business owners don't have any idea what the ramifications are of a particular business form or that are even aware of the the types of the the varieties of organizations they can choose from so that's why they need the guidance of an attorneyand also tax advisers because there are huge implications for liability matters and in tax matters that the hinge on the the business...