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FORMS OF BUSINESS
ORGANIZATION
COMMERCIAL LAW &
PRACTICES IN THE UAE
Slava Liachenko
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SOLE PROPRIETORSHIP
Unlimited and personal liability for the debtsof the business
All the property may be seized and sold If the business goes bankrupt so does the
owner The proprietor is only one person who
manages the business
Profits considered as personal income of thebusiness owner
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SOLE PROPRIETORSHIP
Profits are taxed as personal income
Termination when the proprietor dies or cease
doing business A person is required to register sole
proprietorship and paid the required fees for
registration and update each year when this
person DOES NOT use his own name as thename of business
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GENERAL PARTNERSHIP
When 2 or more people agree to operatebusiness together they produce verbal orwritten CONTRACT OF PARTNERSHIP
Personal unlimited liability for the debts Partners are solidarily liable for the debts any
one or more of the partners may be required topay all or part of any debt
Profit is considered personal earnings of thepartners (depending on their shares) Profit is taxed as personal income
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GENERAL PARTNERSHIP
Only one arrangement is NOT permittedwhich excludes a partner from any share
of the profit so, the partner MUST havesome shareThe partners will agree between
themselves in how to manage the
business everything is usually reflectedin partnership agreement (written one isnot required by law but suggested)
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GENERAL PARTNERSHIP
Termination can be done when any partner becomes
dead or bankrupt, by accomplishments of the
objectives, bankruptcy, or by agreement between
partnersAll partnerships are required to register a Partnership
Declaration. This document becomes public
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LIMITED PARTNERSHIP
LIMITED PARTNERSHIP differs in the liabilityfor debts and in the right to participate inmanagement
The general partners are unlimitedly andsolidarily liable Special partners are liable only to the extent of
stipulated amount that they have contributed. Ifthe amount is NOT stated they are alsosolidarily liable
Special partners are not permitted to take partin day-to-day management no active role
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LEGAL DISTINCTION BETWEEN
OWNERSHIP AND BUSINESS
In proprietorship and partnership there is no
LEGAL DISTINCTION between the owners and
the business -- they are one and the same, and
unlimited personal liability is a result Usually because the business is small, the
owners of these two do not object to be
exposed to debt that is not great enough to
wipe them out
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LEGAL DISTINCTION BETWEEN
OWNERSHIP AND BUSINESS
If the business owners, however, speak about
hundreds of thousand and millions of dollars,
there is not many people who are prepared to
bear this kind of risk Therefore, before letting the business to grow,
the owners usually look for the way to limit their
liabilities for debts
In CORPORATIVE form of business, ownershipand business itself are separated from each
other
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CORPORATION: MAIN
FEATURES
The main difference a corporation is created by thegovernment as a separate legal person. This person is afiction of the law because it does not exist PHYSICALLY
The form Articles of Incorporation with the fees are sentto the Government, and if the form is filled correctly, verysoon the owners receive Certificate of Incorporation.This way, a separate legal personality is created
If the corporation does not have the funds to pay thedebts, no creditors can come to the owners and ask themto pay the balance. The creditors simply have to take theloss. Therefore, creditors usually take great care beforethey extend credit to corporations
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HOW OWNERS PARTICIPATE IN
A CORPORATION?
1.They can be employees and receive salary 2.They can hold small units of ownership
(shares)
Owners invest money by buying shares The balance of the shares remains in the
treasury of the corporation to be sold in thefuture if the corporation requires additionalcapital
The profits from the shares (dividends) aredivided between the holders of the shares orreinvested
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LIMITED LIABILITY FOR DEBTS
A person who invests money in the
shares is protected against the loss of
any further funds, beyond the amountpaid for the shares
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TRANSFERABILITY OF SHARES
The ownership in sole proprietorship or inpartnership is a personal matter
In corporation an ownership is objective since it can
be transferred to one or more other persons SHARE CERTIFICATE is the evidence of
ownership
The transfer of persons shares does not in any way
affect the legal existence of a corporation. Thecorporation continues to operate
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IMMORTALITY
A corporation will exist forever unless:
The shareholders decide to end its
existenceBankruptcy
Violation of law order of a court
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DISADVANTAGES OF
CORPORATION
more complex forms and financial structure
that usually requires professionals and lawyers
expensive to start (usually a lawyer or a notaryis needed to ensure that everything is done)
must observe government requirements
double taxation
difficult to keep operations and results secret
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STRUCTURE OF MANAGEMENT
Shareholders delegate their authority to operate thecompany to a group elected by them Board of Directors
That directors of companies are not required to holdshares, and there may be any number of directors.However, if the shares are distributed to the publicgenerally, there must be at least 3 directors, 2 of whomare neither officers nor employees of the corporation
The majority of the directors must be resident
The appointed officers can be from inside or outside ofthe corporation
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THE POWERS
POLICY-MAKING VS .
IMPLEMENTATION Board of Directors
vs. President and other officers