Types of Business Entities

Corporations: A corporation is an entity created by law capable of owning assets, incurring liabilities, and engaging in various business activities. The corporation is a legal entity separate from its shareholders, even if the corporate stock is owned by a single individual. Ownership in a corporation is evidenced by stock ownership.  The owner(s) of a corporation are its shareholders.  Shareholders need not be individuals.  This means that one corporation can own stock in another corporation.  Ownership in a publicly traded corporation is readily transferable.  Shareholders have no liability for the debts of the corporation.  Frequently, stockholders have little active role in the management or day to day operations of the corporation.  This is particularly true of publicly traded corporations.

Proprietorship:  A sole proprietorship is the simplest business organization operated by one individual called the business owner. In community property states, this definition has been expanded to include a legally married spouse of the owner. The owner's individual assets and liabilities become intermingled with the assets and liabilities of the business, and the owner is afforded no protection from the liabilities of the business meaning that a creditor may look to the assets of the business or of the owner of that business for payment if the business entity is a sole proprietorship.

Partnership:  A partnership is an enterprise of two or more parties that exists to generate a profit. Each partnership is governed by a verbal or written agreement under the Uniform Partnership Act of 1996. Many large partnerships are complicated organizations operated by many different legal entities representing individuals, partners, and corporations. In some partnerships, each partner generally shares equally in the profits and liability of the partnership meaning that creditors can look to the business or to the partners for payment of outstanding debts.  Various forms of partnerships include:

• General Partnerships
• Limited Partnerships
• Limited Liability Partnerships

Joint Ventures:  A joint venture is an association of two or more individuals or businesses established for the purpose of forming a single business entity. Joint ventures are sometimes used for developing real estate tracts, exploring for natural resources, underwriting and selling an issue of corporate securities, and similar undertakings. They are usually formed to share risks associated with a particular business undertaking, to accumulate capital, and to attract special skills to a project.

Source: Corporate Finance & Accounting

Edited by Michael C. Dennis