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 What is a Special Business Form?

Special business forms are businesses that reflect characteristics of more than one type of typical business. For example, a business considered a special business might have characteristics of both a corporation and a partnership. These businesses are put into a separate category because they do not exactly fit the definition of one particular type of business.

What are the Different Types of Business Entities

Before looking at the different types of special business forms it is helpful to understand the different types of business entities. Businesses can be structured in a few different ways that will affect legal control, liability, and taxes. Each business structure has its own advantages and disadvantages. 

  • Sole Proprietorships: Sole proprietorships are also known as sole traders. These are owned by single individuals. That individual takes on all of the risk associated with the business, including any debts and liabilities. The sole proprietor and the business they own are one and the same. The sole proprietor makes all of the decisions and gets all of the profits.
  • Corporations: Corporations are entities that are legally separate from the business’s owners. The corporation is owned by shareholders, with officers and a board of directors who manage the company and make decisions. State law dictates how corporations are created. 
    • The hallmark of corporations is the limited liability that protects shareholders from liability for the corporation’s debts, Shareholders profit from dividends and the increase in the value of their shares when the price increases. Like individuals, corporations can enter into contracts, own assets, and are responsible for paying taxes. Corporations can be either S Corporations or C Corporations and the type will determine exactly how the business is taxed.
  • Limited Liability Companies: Like corporations, limited liability companies (“LLC”) are separate legal entities from their owners and have limited liability. However an LLC is not subject to the same strict management structure imposed on corporations.
  • Partnerships: There are three different types of partnerships, with the main difference between them being who assumes liability.
  • General Partnership: two or more partners who share all of the profits, debts, and liabilities and can be held personally liable for any debts and liabilities. 
  • Limited Partnership: A limited partnership consists of one or more limited partners and one or more general partners. The general partners assume any of the debts and liabilities of the limited partnership. In most cases all partners share in the profits.
  • Limited Liability Partnership (“LLP”): In an LLP all partners enjoy limited liability. Partners are not liable for the negligence or misconduct of other partners. In some states this type of structure is reserved for certain professions. 

What are Different Types of Special Business Forms?

There are several examples of businesses that are considered special business forms. Some special businesses include the following:

Joint Venture

A joint venture is formed when two or more people or businesses combine or “join” their resources (financial or otherwise) and pool their efforts to pursue a specific goal. It can be one project or business activity separate from what they do on their own. Each person or business participating in the joint venture is responsible for costs, profits, and losses, however the joint venture is kept separate from other individual business interests. 

Joint ventures are commonly thought of as partnerships, however a joint venture can officially be any kind of legal structure, such as a corporation, limited liability company (LLC), professional corporation, etc.

In most cases the joint venture is a temporary agreement between the businesses involved. They enter into a contract that outlines the terms of the venture, breaking down the specifics for each participant involved in the project. In many cases the division of work and resources between the entities involved in a joint venture is uneven. It is important that everyone knows exactly how each participant in the project will contribute. A thorough contract can keep expectations clear. 

Syndicate

A syndicate may also be known as an investment group. A group of people or companies in the same industry who get together to finance and invest in a project are considered a syndicate. Typically this is a large endeavor that would be difficult to do as an individual person or individual company. 

An example of companies coming together to form a syndicate might be companies from several different specialties in the construction industry joining together to complete a large development project, such as a sports stadium or highway. Individuals might come together to purchase and invest in a professional sports franchise. A syndicate might legally be structured as a partnership or corporation.

Joint Stock Company

A joint stock company resembles both a partnership and a corporation. Similar to a corporation, a joint stock company sells stock to investors and is owned by the investors. Each investor’s share of the company depends on the amount of stock they purchased. 

Like a partnership, the shareholders are responsible for the company’s debts and share in the profits. Like many of the special business forms, joint stock companies finance projects or ventures that are otherwise too expensive for an individual to fund on their own.

Business Trust

A business trust is created by a written trust agreement. The trust sets up the legal ownership, administration, and management of the business. The agreement names the trustees and the beneficiaries. The trustees own the business and run it for the benefit of the beneficiaries, to whom the profits are distributed. 

The purpose of the business trust is to manage the business and make a profit for the benefit of a third party. The trustee can be an individual or a trust company. The trust does not own any of the assets they are assigned with managing, but they are responsible for taking care of the company’s assets on behalf of the beneficiaries. Business trusts are often used for wealth and asset management and charitable organizations.

Cooperative

Cooperatives are also generally known as associations. Cooperatives consist of a group of people who run the cooperative for their own mutual benefit, while at the same time providing a service to members or shareholders. The service is economic, but there is not a profit motive behind the operation of the cooperative. 

One common example of a cooperative is a homeowner’s association that provides maintenance, safety, and aesthetic guidelines and services to a residential community for a fee paid by the homeowners. The association consists of residents, who operate the association for the benefit of themselves and the rest of the community.

How Can an Attorney Help Me?

As with traditional business entities, special business forms have their advantages and disadvantages. It is important to consider how your business’s organization will affect management, legal, control, taxation, and liability. An experienced corporate attorney can assess your particular situation and help you decide which business structure will work best for your particular situation. 

A local attorney will be familiar with your state laws and how they affect businesses. Since special business forms combine characteristics of the typical business forms, it is important to consult with an attorney so that you understand just how the laws will apply to you, your business, and any partners or associates you are working with.

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