| № | Item | Sole Proprietorship | Partnership | Corporation |
| 1. | Creation | Few, if any requirements (easiest to organize) | By agreement of partners (generally should be written; limited partnerships must complete and file a statutory form) | By statutory authorization (must meet state requirements to receive a state charter) |
| 2. | Governmental regulation of business structure | Almost none | Little, except for limited or other special partnerships | The most |
| 3. | Governmental regulation based on the type of business (products, markets etc) | Yes | Yes | Yes |
| 4. | Owners | The proprietor | The partners | The stockholders |
| 5. | Liability of individual owners for business debts or actions | Unlimited | Unlimited, except that in a limited partnership the limited partners usually can lose only their investmrnts | Limited; stockholders generally can lose only their actual investments |
| 6. | Transfer of owner’s interest | By sale of business, inheritance, or any other lawful means chosen by proprietor | Buyer can receive some but not all rights of a partner unless other partners agree; limited partner’s interest is freely transferable | In most cases the stock is freely transferable |
| 7. | Profits and losses | Solely the proprietor’s | Shared equally by partners unless partnership agreement states otherwise | Calculated after paying salary to employees, including officers; profits are retained by corporation and or distributed pro rata to stockholders as dividends |
| 8. | Management | The proprietor | General partners – equal votes unless expressly stated otherwise in the partnership agreement; limited partnership – limited partners have no management rights | Management distinct from owners; officers are appointed by directors, who are elected by stockholders |
| 9. | Income taxes | Profits part of personal income; no separate tax for the proprietorship | Each partner’s share of profits (whether distributed or not) is part of his/her personal income; no separate tax for the partnership | “Double taxation” – corporation pays income tax on net profits (no deductions for dividends); each stockholder’s dividends are part of his/her personal income and thus are taxed |
| 10. | Termination | By sale, or voluntary cessation of business; or by death or incapacity of proprietor | By terms of partnership agreement; by agreement of partners; by death, incapacity or withdrawal of one or more partners; or by sale or voluntary cessation of business | Can have perpetual existence, as provided by statute and/or articles of incorporation; can continue despite death, incapacity or withdrawal of officers, directors and/or stockholders |
| 11. | Size of business | Can be substantial, but tends to be small | Can be substantial, but tends to be small | Varies from small to the largest business entities in existence: most significant businesses are or become corporations |
Reading tasks
Answer these questions.
1 What are the main types of business organizations in the USA?
2 How is a corporation created?
3 On what conditions can a buyer of a partnership interest receive all rights of a partner?
4 Compare the three types with respect to liabilites and profits.
5 Who appoints the directors of a corporation?
6 Name the principles of a partnership termination.
Vocabulary tasks
A Find in the text the English equivalents for the following Russian words and expressions.
| 1 небольшое предприятие 2 бремя ответственности 3 владелец 4 предприятие на дому 5 подоходный налог на прибыль 6 прибыли 7 управлять компанией |
Sole proprietorship
In this form, the owner is the business. Sole proprietorships are very common and constitute over two- thirds of all American businesses. They are also usually small enterprises. Sole proprietors can own and manage any type of business from home-office undertaking to a huge restaurant or construction firm. A major advantage of sole proprietorship is that the proprietor receives all the profits (because he/she takes all the risks). It is easier and less costly to start sole proprietorship. The sole proprietor is free to make any decision. He/she also pays only personal income taxes on profit. But the major disadvantage of the sole proprietorship is that the proprietor alone, as sole owner, bears the burden of any losses or liabilities, i.e. is liable for his debts.
B Use an appropriate word or phrase from the box to complete each sentence.
| income general partner limited liability management joint undertaking carry on business statute shared agreement |
Partnerships
General partnership
A partnership is a 1)________ that is created by 2)________, written or not, between two or more persons to 3)________ for profit. Partners are co-owners of a business and have a joint control over its operation and the right to share in its profits. They take part in the 4)________ of the business. Partner’s profit is taxed as individual 5)________.
Limited partnership
A special and popular form of partnership, which consists of at least one
6)________ and one or more limited partners. General partners have all rights in management, limited partner has no right in management. Profits are 7)________ according to the agreement. The advantage of becoming a limited partner is 8)________, when the maximum money at risk is defined by the limited partnership agreement. Unlike the general partnership, the limited partnership is created by 9)________.
C Write down English equivalents for Russian words and expressions.
Corporations consist of (акционеров). А (Совет директоров), elected by the shareholders, manages the business. The board of directors normally employs (чиновников) to overse the day-to-day operation. One of the key features of a corporation is that the (ответственность владельцев) is limited to their (инвестициями). The corporation is created by statue and becomes a (юридическое лицо). The major disadvantage of a corporations is “double taxation” – corporations pay income tax on (чистая прибыль) and shareholders pay income tax on their (дивиденды).
D Complete the following dialogue.
A Well, I’ve read about the types of businesses enough. What a knotty problem! The more I read the more confused I get.
B. Come on, don’t get nervous. I’m ready to help you. Go ahead with questions.
A O’K. The sole proprietorship… It may be a big restaurant or construction firm. That means people work there, right? But why then the owner receives all the profits?
B. …………………
A. I see. What about liabilities? Can you explain this in plain words?
B. …………………
A. Aha, I got that. Now let’s discuss the partnerships. How many partners can be there in each type of this business?
B. …………………
A. Do they equally share the profits?
A. …………………
B. How do the partners pay the taxes?
A. …………………
B. This is a great advantage, I should say. If I ever decided to start a business I would make it a partnership. What is better - to be a general or limited partner?
A. …………………
B. Now we are coming to corporations... But I have no questions here. No, this double taxation. Will you fill me in?
A. …………………
B. Thanks a million. Now I understand everything.
E Complete the sentences using the following phrases: meet state requirements, to file the form, by agreement, statutory authorization, to complete the form, to receive a state charter
1 General partnerships are formed…………………
2 Limited partnerships must…………………
3 Corporations are created by…………………
4 Corporations must…………………
F Match the words with their definitions.
| 1 insolvency 2 termination 3 withdrawal 4 perpetual existance 5 cessation 6 incapacity | a continuation all the time without stopping b state of not having enough money to pay what you owe c an end, ending d disability to do smth e stop taking part in an activity or being a member of organization f end of doing smth |
Over to you
1 What are the three basic types of business organizations?
2 John wants to control a business completely, knows nobody else with whom he wishes to work, and dislikes formalities, paperwork and lawyers. What type of business organization would he probably prefer?
3 Mary has the time and expertise to put into a new bakery, but little money. Sally has a substantial sum of money, but no interest in day-to-day operations. What business form would you recommend?