Chapter 4 Forms ofOrganization

PART THREE

Chapter 3 Forms of Organization

3.1 Forms of organization

As with types of businesses, the way in which the accounting information is reported will depend on the type of ownership.There are three forms of business ownership. The main types of ownership are listed as below.

3.1.1 Sole proprietorship

a business consisting of a single owner (which may itself be a business entity), not in a separately recognized business form.

3.1.2 Partnership

Under this type of ownership, two or more people decide to pool their skills and resources and go into business together. A partnership, like a sole proprietorship, has unlimited liability. Indeed, one partner may be responsible for getting the partnership into debt but another partner may have to pay those debts out of their personal funds. A partnership type of ownership is common among lawyers and doctors as they are bound by the ethics of their profession to

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suffer unlimited liability. Accountants can now form companies, with the exception of Auditors.

3.1.3 Company

An important feature of a company is that it is a separate legal entity from its owners (shareholders). Since the company is a legal entity in its own right, it is responsible for its own debts and losses. This means that once the shareholders have paid whatthey agreed to pay for the shares, their obligation to the company and the company?s creditors is satisfied. This is of great importance to the shareholders since they know their liability is limited. Another feature of a company is that its life is not limited by the life of the shareholders. Shares may be sold by an existing shareholder to another person who wishes to become a shareholder. When a shareholder dies, that person?s shares pass to the beneficiary of his or her estate.

3.1.4 COMPARISON OF OWNERSHIP

Sole Proprietor Not a separate legal entity

Partnership Not a separate legal entity

Company Separate legal entity

Legal Status of Business Entity

Risk of Ownership

Owner?s personal assets at risk Partners? personal assets at risk

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Limited liability

Duration of Life

Transferability of Ownership Interests

Sources of Finance Profit Sharing

Ownership

Capital

Liability for firm’s debts

Management

Expires by owner?s choice or death of owner

If proprietor sells his interest, the business is reconstituted under new ownership Owner?s funds and loans

All accrue to owner

One owner Provided by owner

Unlimited Owner

Expires by choice Perpetual or withdrawal of succession partner

Partnership share Usually cannot be sold transferable without agreement of other partners: new partnership

formed Partners? funds Shares, and loans debentures,

loans Shared according Dividends to partnership declared by agreement or

directors

Partnership Act 1908 Two or more

One or more

Partners contribute Divided into according to shares partnership agreement Unlimited Limited to the amount outstanding on

sharecapital

Each partner

Appointedbyshareholders

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2.2proprietorship

2.1.1 Introduction of proprietorship

A sole proprietorship, also known as the sole trader or simply

a proprietorship, is a type of business entitythat is owned and run by one natural person and in which there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss etc.

2.1.2 Features of sole proprietorship

The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a \partnerships (which have at least two owners).

A sole proprietor may use a trade name or business name other than his, her or its legal name. They will have to legally trademark their business name, the process being different depending upon country of residence.[1]

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2.1.3 Featureof Proprietorship

A permitted exceptionto the sole proprietor (single owner) stipulation is made by the Internal Revenue Service (IRS) permitting the spouse of a sole proprietor to work for the business. They are not classified as partners in the enterprise, or an independent contractor, enabling the business to retain its sole proprietorship status and not be required to submit a partnership income tax return. Registration of a business name for a sole proprietor is generally uncomplicated, unless it involves the selection of a name that is fictitious, or “assumed.” The business owner is required to register with the appropriate local authorities, who will determine that the name submitted is not duplicated by another business entity. Furthermore, the business owner must complete a form submitted to the governing authority to acquire title as a “DBA” or \doing business as”. The authority in some states is the Secretary of State. The license for a sole proprietary business entitles the owner to hire employees and enlist the services of independent consultants. Although an employee or consultant may be requested by the owner to complete a specific project or participate in the company's decision-making process, their contribution to the project or decision is considered a recommendation under the law. Under the legal doctrine Respondeat superior (Latin: \answer\legal liability for any business decision ari …… 此处隐藏：3485字，全部文档内容请下载后查看。喜欢就下载吧 ……