Characteristics of Legal Organization Example

Essays on Characteristics of Legal Organization Essay Question Identify and explain the primary characteristics of each form of legal organization" According to Keown, Martin, Petty and Scott (1998) legal organizations are numerous and diverse, and therefore are classified into three categories. The categories include sole proprietorship, partnership, and corporation. They fall into these classes according to their forms of operation and type of ownership. Sole proprietorship is a form of organization formed, owned, and operated by an individual (Keown et al, 1998). It is a small business operation and therefore the owner is able to manage it responsively. It does not require a legal requirement when starting if the owner is using his name. In case the owner wants to change the name, he or she can apply for a certificate and pay a certain fee. All the assets belong to the owner, and he is responsible for the liabilities incurred. He or she also enjoys all the profit and suffers the losses incurred by the business. Partnership refers to a business owned by two or more individuals as co-owners in order to make profit (Keown et al, 1998). Partnerships fall into two groups, which are general and limited partnerships. A general partnership is whereby an individual is fully responsible for all the liabilities incurred, and therefore any form of liability affects all the partners. In limited partnerships, individuals are partly responsible for the liability incurred depending on the amount of capital they invested in the partnership. One of the partners must have unlimited liability. The others with limited liability may not appear in the name of the firm, and may not participate in the management of the business. A corporation is an entity that legally functions separately and apart from its owners (Keown et al, 1998). It operates individually in terms of business operations, but its personnel are subject to punishment in case of criminal offenses. It is composed of owners who dictate its direction and policies. The owners elect a board of directors, who select individuals to serve as corporate officers. A corporation dictates ownership by the amount of shares an individual owns as indicated by the common stock certificates. This depends on the number of shares an individual owns relative to the total number of shares the corporation has, and therefore determines the stockholder’s proportionate ownership in the business. The shareholders are free to sell and buy shares from their fellow shareholders because the shares are transferable. The amount they have invested in the company confines the shareholders to the liabilities, and therefore prevents creditors from confiscating stockhold er’s personal assets in case of settling unresolved claims. The life of a corporation is not dependant on the status of the investors. References Keown, A.J., Martin, J.D., Petty, J.W., Scott Jr., D. F. (1998). Foundations of finance the logic and practice of financial management, (6) 7-8.