The Financial Position of the Investor
There are any number of subtle legal distinctions among these three types of business firms and any number of variants of them, but for our purposes the crucial difference among the three is that if an individual is one of the owners of a corporation that individual’s wealth (above what has been invested in the corporation) is not subject to claim by creditors of the corporation. If an individual is an owner or part-owner of the proprietorship or partnership, then any debts of the business firm become the individual’s debts. Any creditor of the partnership can sue any owner for full payment of the debt, leaving it to that owner to collect from his or her co-owners, if they have any assets themselves. It is clear that the corporate form of business has marked advantages over the partnership form in raising funds from perspective owners, simply because of the limits that are placed on the owner’s liability for debts of the corporation.
This accounts for which British corporations are identified, that is, by a “Limited “ or “Ltd.” after the corporate name, as in the British Steamship Lines, Ltd. Corporations have limited liability for their owners; as owner can lose only what he has invested in the firm, and no more. However the owner of a proprietorship or the co-owner of a partnership is legally liable for all of the debts of the business, and co-owners can lose substantially more than the investment made in the business itself. On the other hand, the status of a public company is shown by the letter’s “Plc” after its name. This is short for “public limited company”. In practice, however, the real difference between the two arises from the fact that limited ownership companies cannot raise money by selling shares, in contrast to public companies which can do so by issuing shares and bonds to be offered for sale on the Stock Exchange.
It might appear that the limited liability property of the corporate form insures that every business will be organized as a corporation. Things are not quite so simple.
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