Fin/419 Legal Forms of Business
February 4, 2013
Legal Forms of Business Organizations
In business, there are legal forms that organizations are classified under. There are three most common forms of business organizations, sole proprietorship, partnership, and corporation. The life cycle theory of the firm starts out as a proprietorship. As a firm grows larger, more complex and needs more capital than is available from the proprietor, the proprietor can choose to change the firm’s Legal Form Organization to a partnership, legal liability company, S-corporation or C-corporation. Only about one in three firms begin life as a proprietorship, while almost as many begin as limited-liability companies and as corporations according to “How Do Firms Choose Legal Form Organizations?” by Rebel Cole.
A sole proprietorship is a business owned by one person operates it for his own profit. (Gitman, Lawrence. 2009) The sole proprietor has unlimited liability is told well not merely the amount originally invested to be taken to satisfy creditors. It is one that has no separate legal existence from its owner. There are no legal requirements to operate a proprietorship; the law treats the legal obligations of the proprietorship as those of the owner. Since there is no separate legal entity, the profits and losses of the business flow through to the owner, as do any legal liabilities; the owner is personally responsible for all legal obligations of the firm and her personal wealth is at risk. It can consist of two persons say for instance, a husband and wife filing a joint tax return or one owner that is limited in the amount of equity capital by the personal wealth of proprietor. The life of a proprietorship is limited by the life of the proprietor; the firm dies with the owner; partial ownership shares do not exist for a proprietorship; the firm must be bought or sold in its entirety.
References: Cole, Rebel A. How Do Firms Choose Legal Form of Organization? Chicago, IL 60602 Gilman, Lawrence Principles of Managerial Finance, 12th edition Prentice Hall 2009