1. Describe the three primary legal forms available for a business.
2. List and discuss the advantages and disadvantages of incorporating a business rather than maintaining a sole proprietorship or partnership.
3. Explain the double taxation that is inherent in operating a corporate organization.
4. Describe the impact that the possibility of issuing capital stock has on a corporation.
Question: In the United States, businesses and other organizations must operate under one of three legal forms1.A
proprietorship is created by a single owner whereas a partnership is started and owned by two or more parties.
Establishing ownership is often quite informal. In contrast, a corporation comes into existence by means of
a formal request made to the state government. The number of owners is usually not relevant in creating a
corporation. Because corporations are the dominant legal form (at least monetarily) in the world, they have
been the primary emphasis throughout this text. Numerically, more proprietorships and partnerships do exist
but virtually every business of any size operates as a corporation. How is a corporation established, and what
characteristics make it attractive?
Answer: Incorporation of an entity is only required in one state regardless of its size. To start this process, the
original owners submit articles of incorporation to that government2. Rules, regulations, and requirements vary
significantly so that these procedures are more complicated in some states than others. For example, many well-
known businesses are incorporated in Delaware because of the ease of the laws in that state.
After all documents have been filed and all other requirements met, the state government issues a corporate charter
that recognizes the organization as a legal entity separate from its ownership. This separation of the ownership is
what differentiates a corporation from a partnership or proprietorship. Following incorporation in one state, the
entity is then allowed to operate in any other state.