Company:

Any formal business entity for profit, which may be a corporation, a partnership, association or individual proprietorship. Often people think the term "company" means the business is incorporated, but that is not true. In fact, a corporation usually must use some term in its name such as "corporation," "incorporated," "corp." or "inc." to show it is a corporation.

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Corporation:

An organization formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital. One benefit is that a corporation's liability for damages or debts is limited to its assets, so the shareholders and officers are protected from personal claims, unless they commit fraud. For private business corporations the articles of incorporation filed with the Secretary of State of the incorporating state must include certain information, including the name of the responsible party or parties (incorporators and agent for acceptance of service), the amount of stock it will be authorized to issue, and its purpose. In some states the purpose may be a general statement of any purpose allowed By law, while others require greater specificity. Corporation shareholders elect a board of directors, which in turn adopts Bylaws, chooses the officers and hires top management (which in smaller corporations are often the directors and/or shareholders). Annual meetings are required of both the shareholders and the board, and major policy decisions must be made By resolution of the board (which often delegates much authority to officers and committees). Issuance of stock of less than $300,000, with no public solicitation and relatively few shareholders, is either automatically approved By the state commissioner of corporations or requires a petition outlining the financing. Some states are considered lax in supervision, have low filing fees and corporate taxes and are popular incorporation states, but corporations must register with Secretaries of State of other states where they do substantial business as a "foreign" corporation. Larger stock offerings and/or those offered to the general public require approval By the Securities and Exchange Commission after close scrutiny and approval of a public "prospectus" which details the entire operation of the corporation. There are also non-profit (or not for profit) corporations organized for religious, educational, charitable or public service purposes. Public corporations are those formed By a municipal, state or federal government for public purposes such as operating a dam and utility project. A close corporation is made up of a handful of shareholders with a working or familial connection which is permitted to operate informally without resolutions and regular board meetings. A de jure corporation is one that is formally operated under the law, while a de facto corporation is one which operates as if it were legal, but without the articles of incorporation being valid. Corporations can range from the Corner Mini-Mart to General Electric.

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Limited Liability:

The maximum amount a person participating in a business can lose or be charged in case of claims against the company or its bankruptcy. A stockholder in a corporation can only lose his/her investment, and a limited partner can only lose his/her investment, but a general partner can be responsible for all the debts of the partnership. Parties to a contract can limit the amount each might owe the other, but cannot contract away the rights of a third party to make a claim.

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Limited Liability Company:

A business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself.

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Limited Partnership:

A special type of partnership which is very common when people need funding for a business, or when they are putting together an investment in a real estate development. A limited partnership requires a written agreement between the business management, who is (are) general partner or partners, and all of the limited partners. Each limited partner makes an investment of funds into the partnership and is supposed to receive a pre-stated share of the profit, which is ordinarily greater than that of each of the general partners up to a point (such as return of the investment), and, thereafter, the limited partners will receive a lesser share than the general partner(s). The limited partners also will receive the tax benefit of a "passed through" loss (a personal income tax deduction for part of the loss) during the development stages of the partnership when the expenses exceed any receipts. Quite often there is also a provision for eventual buy-out of the limited partners By the general partner(s). The limited partners may not participate in the management decisions of the partnership or they will lose their limited partnership status. They do have the power to vote to remove the general partner(s), although usually the partnership agreement is structured so that such removal is virtually impossible unless the general partner in question has committed fraud. Since the limited investors have no control of the conduct over the partnership, they should make sure they have considerable knowledge about the reputation and record of the general partner(s) and the type of business. In fact, state laws require that there be some pre-existing acquaintanceship between the general and the limited partners or a detailed prospectus provided By the general partner(s) meeting very stringent and specific federal requirements of disclosure. The maximum number of limited partners is set By state law to prevent using interests in the limited partnership as if they were shares of stock in a corporation. In addition to priority in profit, tax deductions, and potential share in the success of the enterprise, the limited partner is "limited" in potential loss, since all he/she can lose is his/her investment, and the general partners alone are subject to claims, debts in bankruptcy and lawsuits against the partnership. Limited partnerships must file their name and names and addresses of general partners with the Secretary of State or other designated officer in the state in which the partnership is created so the public can find out who the responsible parties are. Like a corporation, a limited partnership may not have a name which is too similar to another limited partnership or corporation.

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Partnership:

A business enterprise entered into for profit which is owned By more than one person, each of whom is a "partner." A partnership may be created By a formal written agreement, but may be based on an oral agreement or just a handshake. Each partner invests a certain amount (money, assets and/or effort) which establishes an agreed-upon percentage of ownership, is responsible for all the debts and contracts of the partnership even though another partner created the debt or entered into the contract, has a share in management decisions, and shares in profits and losses according to the percentage of the total investment. Often a partnership agreement may provide for certain division of management, shares of investment, profit and/or rights to buy out a partner upon leaving the partnership or death. Each partner owes the other partners a duty of full disclosure of information which affects the business and cannot commandeer for himself/herself business opportunities which rightfully belong to the partnership. A partnership which does business under a trade name must file with the county or state a certificate of "doing business under a fictitious name," which gives notice to the public of the names of partners and the business address. A "limited partnership" limits the responsibility for debts beyond the investment to the managing "general partners." The investing "limited partners" cannot participate in management and are limited to specific percentages of profit. A partnership differs from a "joint venture," which involves more than one investor for only a specific short-term project and prompt division of profits. Partnerships are traditionally the most fragile of business arrangements and are often dissolved and subject to disputes. But several million exist in the United States and, ironically, they are the favorite business entity for law firms.

Sole Proprietorship:

A business owned By one person, as distinguished from a partnership or corporation.