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There are three main types of organizational structure.
1. The simplest form is the proprietorship (or self-proprietorship as
it
is also known) is the easiest type of organization to form. It is formed
by an individual who runs the company without any separation of his
or her
personal wealth and that of the firm. The advantage is that it
is easy to
form and there is no double taxation, the drawbacks are that it is
nontransferable, has a limited life, and the proprietor has unlimited
liability. That means (s)he can be held personally liable and
thus lose
more money than was invested.
2. In its most simple form, a Partnership is little more than a
proprietorship with multiple proprietors. Thus, the ownership
is
non-transferable, the organization has a limited life, and investors
still
have unlimited liabilities. To lessen these several forms have
been
created such as a limited partnership. Here there must be a single
general partner that has unlimited liability, but over passive investors
have limited liability while still avoiding double taxation.
3. Corporations make up the vast bulk of the economy. Most large
firms
(and many small firms) are corporations. The advantages are numerous
but
include ease of transferring shares and a limited liability.
The courts
have recognized corporations as legal entities. As such, the
corporation
has an unlimited life, must pay taxes (hence the idea of double taxation),
is considered to be separate from its owners.
There are of course many hybrid forms (such as S-Corporations and LLCs)
that have been developed as means around taxes. For more on these,
check
out my class notes on the subject.
http://www.financeprofessor.com/financenotes/introductoryfin/organizationstructure.html
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