Forms of business organization
Individual Proprietorships:- An individual proprietorship is a business operated by a person at his own personal property. For example one might conduct a computer service business as an individual proprietorship. It would be very much like buying a house as an investment and renting it out. The person operating the business need not use his or her own name as the name of the business; it may be operated under an assumed or trade name such as Data experts company. Such a trade name would have to be registered with the proper state or local official; however employees of the business are the personal employees of the owner. Legally they are no different from a household employee except for income tax purposes. The salaries and wages paid to employees of the business and other business expenses are deductible in determining taxable income.
S Corporations:-This is an important variant of the corporation that should be considered if a business is to be owned by 25 shareholders or less. A subchapter S corporation is a corporation that is taxed very much like a partnership. This is its advantage over ordinary corporations. Several requirements must be maintained or the subchapter S corporation loses its tax status. Only a few will be mentioned here. There can initially be no more than 15 shareholders, they must all be individuals or estates, and they must consent in writing to having the corporation’s income can come from sources other than sales.
Two other forms of business organizations should be mentioned. Both are taxed as corporations. The business trust was originally developed in Massachusetts at a time when corporations were not permitted to own real property. The trustees held title to the assets of the business. Investors were free from personal liability for debts of the business. Control of the business was left to the trustees. The trust certificates that indicated ownership were often called shares. This form of organization was also used to avoid the prohibition in early corporation statutes against corporations holding stock in other corporations. Although relatively rare, this form of the organization is still used today.
Its greatest disadvantage is that a limited liability of shareholders is uncertain in some states. A similar concentration of control can be accomplished in a corporation through a voting trust.
The joint stock association is a form of partnership; however it has most of the characteristics of a corporation. These include free transferability of shares; continuing existence despite transfers of shares and delegation of management decision-making power by the owners. The board is usually called the board of governors. Shareholders generally remain personally liable for the debts of corporations. This was the business form used by the express companies connected with the railroads.
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