[Old Version] Legal Forms of Business Organization【Deric Business Class】

Summary

In this video, Deric explains the three main legal forms of business organization: sole proprietorship, partnership, and corporation. He details the characteristics, advantages, and disadvantages of each. Sole proprietorships are easy to form but come with unlimited liabilities. Partnerships allow for shared responsibilities but also expose partners to collective risks. Corporations offer limited liability and are treated as separate entities, providing continuity and easier capital raising, but involve more complexity and regulation. Deric also outlines various types of partnerships and corporations, highlighting key distinctions to help viewers understand their choices in business organization.

Takeaways

• 😀 Sole proprietorship is a one-person business with no legal distinction between the owner and the business, leading to unlimited liability.
• 😀 In a sole proprietorship, the owner is responsible for all debts, and business termination occurs upon the owner's death or decision to close.
• 😀 Advantages of sole proprietorship include low organizational costs, minimal regulations, and complete control over the business.
• 😀 Disadvantages of sole proprietorship include unlimited liabilities, limited fundraising options, and the requirement for the owner to handle all business operations.
• 😀 Partnership involves a group of individuals (2-20) conducting business together, also lacking a legal distinction between partners and the business.
• 😀 All partners in a partnership share unlimited liability, meaning they are collectively responsible for the business debts.
• 😀 Partnerships can raise more funds than sole proprietorships, and limited partnerships allow some partners to have limited liability.
• 😀 Key disadvantages of partnerships include shared responsibility for each other's actions and difficulties in transferring ownership.
• 😀 Corporations are separate legal entities, allowing for limited liability, meaning shareholders are only liable for the amount they invested.
• 😀 Corporations can raise capital more easily, have continuity regardless of ownership changes, and can hire professionals for management.

Q & A

What are the three common forms of business organization discussed in the video?

The three common forms are sole proprietorship, partnership, and corporation.

What defines a sole proprietorship?

A sole proprietorship is a one-person business with no legal status, meaning the owner and the business are not separated, leading to unlimited liability.

What are the advantages of a sole proprietorship?

Advantages include ease of formation and dissolution, low organizational costs, minimal regulations, complete control, and entitlement to all profits.

What is a major disadvantage of a sole proprietorship?

A major disadvantage is unlimited liability, meaning the owner is personally responsible for all business debts.

How does a partnership differ from a sole proprietorship?

In a partnership, there are two to twenty partners, and like sole proprietorships, it has no legal status and partners share unlimited liability for business debts.

What are the types of partnerships mentioned in the video?

The types of partnerships include General Partnership, Limited Partnership, and Limited Liability Company (LLC).

What is a corporation and how is it legally distinct from sole proprietorships and partnerships?

A corporation is a separate legal entity with its own rights, meaning owners (shareholders) have limited liability and cannot be personally sued for the corporation's debts.

What are the advantages of forming a corporation?

Advantages include limited liability for shareholders, ease of raising capital, continuity of business despite ownership changes, and professional management.

What are some disadvantages of a corporation?

Disadvantages include the complexity of formation, high organizational costs, increased regulations, and lack of secrecy regarding financial information.

What is the difference between public and private corporations?

Public corporations sell shares openly to the public and trade on stock exchanges, while private corporations sell shares to a select group of investors and do not trade publicly.