Corporations

Partnerships

In a partnership, two or more people share ownership of a single business. Like in proprietorships, the law does not distinguish between the business and its owners. The partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. It is a fact that a lot of partnerships split up at crisis times, and unless there is a defined process, there will be even greater problems. They also must decide up front how much time and capital each will contribute, etc.

An important argument in favour of this type of business organisations is that partnerships are relatively easy to establish. Another advantage is that with more than one owner, the ability to raise funds may be increased. Unlike in sole proprietorship, prospective employees may be attracted to the business if given the incentive to become a partner. A partnership does not pay corporate tax like corporations but only ordinary income tax, since the co-owners can use the profits gained as their personal income.

At the same time, partners are jointly and individually liable for the actions of the other partners. In case of bankruptcy, the co-owners who invested more capital (the senior partners) lose more than the junior partners, who invested less. If the business activity is successful and generates profits, they must be shared with others. Similar to a sole proprietorship, a partnership has a limited life: it may end upon a partner’s withdrawal or death. Another serious drawback of partnership is the threat of potential disagreements among partners over decision-making, which may cause management conflicts adversely affecting the business.

A corporation is considered by law to be a unique "entity", separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

If compared with sole proprietorships and partnerships, a corporation has distinct advantages. One of the weightiest factors is that shareholders have limited liability for the corporation's debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in the stock of the company. Corporations have wider opportunities to raise additional funds through the sale of securities. They can transfer ownership through the transfer of securities. With all these advantages, we may wonder why there are much fewer unincorporated businesses than incorporated ones. Obviously, the answer has to do with the disadvantages of the corporation. To start with, the process of incorporation requires more time and money than other forms of organisations because this business organisation is to be created under a government charter. Corporations that are public, i.e. whose shares are sold to the public, are to disclose information about their finances and activities, which may be used by their competitors. Corporations are subject to double taxation. It means that in addition to corporate tax levied on the corporation’s profit shareholders must pay income tax imposed on their dividends.

The form of the business organisation an entrepreneur has chosen is not permanent. If the circumstances of his business change, he can always change the form of his business. For example, he may start his business as a sole proprietorship, but, as his business grows, he may take on a partner and become a partnership. Or, he may choose to incorporate in order to prevent his business creditors from pursuing his personal assets.

 

Language notes:

a lawsuit – судовий розгляд, позов;

if desired – при бажанні (див.нижче when needed – за необхідності; if given – поза наявності);

within the law – у рамках закону;

one and the same ­– те ж саме;

high-calibre employees – високопрофесійні працівники;

unless there is a defined process = if there is no defined process;

… a legal agreement that sets forth how … – … юридичну угоду, яка чітко формулює, як ...;

up front – тут чесно, відкрито;

withdrawal – вихід з угоди, зі складу учасників;

to be sued – залучати як відповідача за позовом;

to be held accountable – нести відповідальність, звітувати;

to incorporate – інкорпорувати, зареєструвати як корпорацію;

incorporated – акціонерний, що має статус акціонерного товариства; зареєстрований як корпорація

i.e. – id est (Latin) = that is (to say) – тобто

Note the difference:

sole proprietor (US and UK) = sole trader (US)

public limited company (UK) = close(d) corporation (US)

private limited company = open corporation (US)

shareholders (UK) = stockholders (US)