Limited Liability Companies (LLP): LPLs are similar to partnerships, each with multiple partners responsible for running the business. However, the partners of the LLP are not personally responsible for the actions of the other partners or the debts of the company. Unfortunately, not all companies can be PLLs. This type of business is often limited to certain professions, such as lawyers or accountants, an accountant plays a very important role in an organization, whether it is a multinational or a small national company. Limited partnerships are a common structure for professionals such as accountants, lawyers and architects. This agreement limits the personal liability of partners so that, for example, the assets of other partners are not put at risk if, for example, a partner is sued for misconduct. Some law firms and accountants continue to distinguish between capital and salaried partners. The latter is higher than the Associates, but has no involvement. These are usually bonuses based on the company`s profits. A corporation (sometimes called a regular corporation or C) is different from a sole proprietorship and a partnership because it is a legal entity that is completely independent of the parties that own it. He can enter into binding contracts, buy and sell property, sue and sue, be held responsible for his actions and be taxed. Once companies have reached a considerable size, it is advantageous to organize as a company so that its owners can limit their liability.
On average, therefore, firms are generally much larger than firms that use other forms of ownership. As shown in Figure 6.2, companies make up 18% of all U.S. businesses, but generate nearly 82% of their revenue.3 Most of the well-known large companies are corporations, but also many small businesses that you`re likely to do business with. Five years after launching their ice cream business, Ben Cohen and Jerry Greenfield evaluated the pros and cons of the company`s ownership form, and the “professionals” won. The main motivation was the need to raise funds for the construction of a $2 million production facility. Not only did Ben and Jerry decide to move from a partnership to a corporation, but they also decided to sell shares to the public (and thus become a public company). Their sale of shares to the public was a bit unusual: Ben and Jerry wanted the community to own the company, so instead of offering the shares to anyone interested in buying a stock, they only offered shares to Vermont residents. Ben believed that “companies have a responsibility to the community from which they derive their support, to give something in return.” 5 He wanted the company to be owned by those who lined up at the gas station to buy cones. The stock was so popular that one in a hundred families in Vermont bought shares in the company.6 Finally, as the company continued to grow, the shares were sold nationwide. C Corporation: This is the most common form of incorporation. The company is taxed as a business entity and the owners receive profits, which are then also taxed individually. Executives, for example, are often more interested in career advancement than in the overall profitability of the business.
Shareholders could care more about profits, regardless of the well-being of employees. This situation is called an agency problem, a conflict of interest inherent in a relationship in which one party is expected to act in the best interests of the other. It is often quite difficult to prevent self-interest from ending up in these situations. An entrepreneur can choose this option if he wants to keep full control of the business. In addition, it is a relatively simple and inexpensive process for starting a sole proprietorship. There are also tax advantages, since the income is considered personal income of the ownerTaxable income refers to the remuneration of a person or company used to determine the tax liability. The total amount of income, or gross income, is used as the basis for calculating the amount that the person or organization owes the government for each tax period. and therefore taxed only once.
Finally, there are relatively few regulatory requirements for sole proprietorships. One of the first things you decide as a business owner is your type of business structure. In summary, here are the main business structures you can choose from: This article provides a brief overview of these four basic types of businesses to help entrepreneurs make one of their most important decisions. Unlike other forms of business organization, partnerships can be formal, with all the confusing legal documents, or informal, based on your collaboration with other parties to make a profit. Section 202 of the Uniform Partnerships Act, 1997 defines a partnership as “the association of two or more persons who form a partnership as co-owners of a for-profit business, whether or not the persons intend to form a partnership.” This definition of “partnership” should give the cautious indication that you may already be in a default partnership, regardless of your intention, when working with others in a profitable business. Limited partnerships: This type of partnership has at least one general partner. This personally liable partner assumes unlimited liability for the company and manages the affairs of the company. In addition, there are also limited partners in limited partnerships. Sponsors assume only as much responsibility as their financial participation in the company. However, as sponsors, they are not involved in management decisions and have no direct control over the company.
Nevertheless, there are a few negative points. First of all, as already mentioned, the partners are subject to unlimited liability. Second, being a partner means that you have to share the decision-making, and many people don`t feel comfortable with this situation. Not surprisingly, partners often have disagreements about how to run a business, and disagreements can escalate to the point of jeopardizing the company`s sustainability. Third, in addition to exchanging ideas, the partners also share the benefits. This agreement can work as long as all partners feel rewarded for their efforts and achievements, but this is not always the case. Although the partnership form was viewed negatively by some, it was particularly appealing to Ben Cohen and Jerry Greenfield. Launching their ice cream business as a partnership was profitable and allowed them to combine their limited financial resources and leverage their diverse skills and talents. As friends, they trusted each other and welcomed joint decision-making and benefit-sharing.
Nor did they hesitate to be held personally responsible for each other`s actions. If you are considering forming a partnership, create a formal agreement that defines the role and actions of each partner. Also specify how you plan to sell or close the business if the partnership dissolves. It is best to formalize your partnership agreement to avoid the risk of unwanted surprises. In addition, a formal partnership agreement is the best way to avoid conflicts between partners when assigning responsibilities. Partnership power should be clearly defined, in particular in the case of legally binding contracts and agreements that may be subject to dispute. As a first step, discuss with your potential partners the attribution of responsibility and authority for leadership. Then, contact a lawyer to formalize the agreement. Fortunately, the Uniform Partnerships Act, which is enforced under the laws of your state, is very flexible in how partners organize their affairs, provided the agreement is formalized.
Most companies can enter into an LLC partnership. LLC partnerships offer personal liability protection and tax flexibility to members. Limited partnerships are a hybrid of partnerships and limited partnerships. At least one partner must be a general partner, with full personal responsibility for the company`s debts. At least one other is a silent partner whose liability is limited to the amount invested. As a general rule, this silent partner is not involved in the administration or ongoing operation of the partnership. The acquisition of Pharmacia Corporation (a Swedish pharmaceutical company) by Pfizer (a U.S.-based research-based pharmaceutical company) in 2003 created one of the world`s largest drug manufacturers and pharmaceutical companies in terms of revenue in all major markets around the world.13 The acquisition created an industry giant with sales of more than $48 billion and a research and development budget of more than $48 billion. $7 billion. Every day, nearly forty million people worldwide are treated with Pfizer drugs.14 The subsequent $68 billion purchase from competing drug maker Wyeth further increased its presence in the pharmaceutical market.15 A limited liability company (LLP) is a type of partnership in which the owners are not held personally liable for the company`s debts or the shares of other partners.