Define your type of Business


When organizing a new business, one of the most important decisions to be made is choosing the structure of a business. Factors influencing your decision about your business organization include:

Legal restrictions, liabilities assumed, type of business operation, earnings distribution, capital needs, number of employees, tax advantages or disadvantages, length of business operation. The advantages and disadvantages of sole proprietorship, partnership and corporation are as following.

Sole Proprietorship

This is the easiest and least costly way to start a business. A sole proprietorship can be formed simply by finding a location and opening the door for business. There are likely to be fees to obtain business name registration, a fictitious name certificate and other necessary licenses. Attorney's fees for starting the business will be less than the other business forms because less preparation of documents is required and the owner has absolute authority over all business decisions.

Sole proprietors are in complete control and may make decisions as they see fit within the parameters of the law. Sole proprietors receive all income generated by the business to keep or reinvest.

This solution is comparable to the creation in France of an individual business in which the individual trader will be indefinitely responsible. Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk.

Individuals seeking sole proprietorship may be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans.

Partnership

Partnership involves the association of two or several persons, who have the quality of co-proprietorship, with the intention of carry out activities aimed at achieving a lucrative goal. The associates can conclude a "partnership agreement" that determines the functional regulations of the partnership.  Two types of partnerships exist: a "general partnership” and a “limited partnership.”

A general partnership can be formed simply by an oral agreement between two or more persons, but a legal partnership agreement drawn up by an attorney is highly recommended.

Every associate of a "general partnership" participates in the management and has the same rights, obligations, and power.  Their responsibility is unlimited as for the debts of the partnership and creditors will be able to carry out garnishment acts on their personal goods.

The "limited partnership" must have at least one associate ("general partner") that is in charge of the management and of which the responsibility is unlimited, as well as associates ("limited partners") that do not take no active party to the control and the direction of the partnership. Their responsibility is limited according to their provision in capital.

Corporation

The corporate structure is usually the most complex and more costly to organize than the other two business formations. Control depends on stock ownership. Persons with the largest stock ownership control the corporation instead of the total number of shareholders. With control of stock shares or 51 percent of stock, a person or group is able to make policy decisions. Control is exercised through regular board of directors' meetings and annual stockholders' meetings.

Records must be kept to document decisions made by the board of directors. Small, closely held corporations can operate more informally, but record keeping cannot be eliminated entirely. Officers of a corporation can be liable to stockholders for improper actions. Liability is generally limited to stock ownership, except where fraud is involved.

 

The information on this site is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in your state. This web site is not intended to be advertising under applicable laws and ethical rules.  These materials have been prepared by the French American Chamber of Commerce with the expertise of our staff and members for informational purposes only and are not legal advice.  Anyone viewing the information should not act upon it without seeking professional counsel. The information contained in this website is provided only as general information which may or may not reflect the most current legal developments.



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