Types of Business Organizations: 3 Forms - Sole Proprietorship Partnership Corporation

Summary

This video explores the three primary types of business organizations: sole proprietorship, partnership, and corporation. It begins with the sole proprietorship, where the business and owner are legally the same, making the owner personally responsible for debts. The partnership involves two or more individuals sharing the business and liabilities in the same way. The corporation, however, is a separate legal entity, with shareholders who are not personally liable for the corporation's debts. The video highlights the key legal distinctions between these business structures, focusing on ownership, liability, and legal personhood.

Takeaways

• 😀 Sole proprietorship: A business form where one individual carries on business alone, with the owner and business legally considered one and the same.
• 😀 The owner of a sole proprietorship is personally responsible for any debts or obligations incurred by the business.
• 😀 In a partnership, two or more individuals work together to carry on business with a goal of profit.
• 😀 A partnership is a relationship between partners, not a separate legal entity. Partners are personally liable for business debts.
• 😀 A corporation is a separate legal entity, distinct from its shareholders. The owners (shareholders) are not personally liable for the corporation's debts.
• 😀 The key difference between a corporation and other business forms is that the business and its owners are legally separate.
• 😀 Partnerships and sole proprietorships share the legal feature where the owners are personally responsible for business liabilities.
• 😀 In a corporation, debts and obligations belong to the corporation itself, not to the shareholders.
• 😀 A sole proprietorship can be easy to set up but comes with the risk of personal liability.
• 😀 Corporations provide limited liability to shareholders, protecting their personal assets from business debts.
• 😀 The three forms of business organizations differ primarily in terms of liability, legal structure, and ownership responsibilities.

Q & A

What is a sole proprietorship?

A sole proprietorship is a business organization where one individual carries on business alone. The owner and the business are legally considered to be one and the same.

What are some key characteristics of a sole proprietorship?

The key characteristic of a sole proprietorship is that the owner and the business are legally considered to be one and the same, meaning that the owner is personally liable for any debts of the business.

How does a sole proprietorship interact with external parties?

A sole proprietorship has dealings with various outside third parties such as customers, suppliers, employees, and government entities like the Canada Revenue Agency.

What is a partnership?

A partnership is a business relationship between two or more individuals who carry on business together with the goal of making a profit. It is not considered a separate legal entity.

How is a partnership legally structured?

Legally, a partnership is a relationship between the owners (partners), and the business is not seen as a separate legal entity. Like a sole proprietorship, the partners are personally liable for any debts the business incurs.

What is the difference between a sole proprietorship and a partnership?

Both a sole proprietorship and a partnership involve personal liability for the owners, but a sole proprietorship has only one owner, while a partnership involves two or more people sharing ownership and responsibility.

What is a corporation?

A corporation is a legal entity separate from its shareholders. It is considered a 'legal person' with its own legal rights and obligations, independent of the individuals who own it.

How are corporations different from sole proprietorships and partnerships?

In a corporation, the owners (shareholders) are legally separate from the business itself. Unlike sole proprietorships and partnerships, the corporation assumes its own debts, and the shareholders are not personally liable for those debts.

What is the role of shareholders in a corporation?

Shareholders are the owners of a corporation. They own shares in the corporation but are not personally responsible for the corporation's debts or obligations.

What is the significance of a corporation being a separate legal person?

Being a separate legal person means that a corporation can enter into contracts, own property, and incur debts independently of its shareholders. This provides limited liability protection for the shareholders.