Learning Module 1
Organizational Forms, Corporate Issuer Features, and Ownership
What you must be able to do
Curriculum Year: 2026
Compare the organizational forms of businesses (sole proprietorships, partnerships, corporations) and describe their key features.
Describe the key features of corporate issuers including the separation of ownership and management, limited liability, and taxation.
Compare public and private corporate issuers, and describe the processes for issuing equity (IPO, direct listing, SPAC).
1. Organizational Forms Compared
Feature | Sole Proprietorship | General Partnership | Limited Partnership | Corporation |
|---|---|---|---|---|
Legal Identity | Same as owner | Same as partners | Separate (for LP) | Separate legal entity |
Owner-Operator | Same person | Partners manage | GP manages; LP invests | Board + hired managers |
Liability | Unlimited | Unlimited (GP) | Limited for LP | Limited for all owners |
Taxation | Single (personal) | Single (pass-through) | Single (pass-through) | Double (corporate + personal) |
Access to Financing | Very limited | Limited | Moderate | Broad capital markets access |
Unlimited liability means creditors can pursue owners' personal assets to satisfy business debts.
Double taxation applies to corporations: profits taxed at the corporate level, then dividends taxed again at the personal level.
In a limited partnership, the general partner (GP) runs the business and bears unlimited liability; limited partners (LPs)provide capital and have limited liability.
2. Key Features of Corporate Issuers
Separate legal entity: A corporation can own assets, enter contracts, sue and be sued — independent of its owners.
Limited liability: Shareholders can lose only their investment; personal assets are protected from corporate creditors.
Owner-manager separation: Shareholders elect a board of directors, which appoints professional managers. This creates agency risk — managers may not always act in shareholders' best interests.
Perpetual existence: The corporation survives changes in ownership or management; shares can be freely transferred.
Free float: The proportion of shares available for public trading. Higher free float increases liquidity.
Double Taxation Example: Auchan (French retailer) had pre-tax income of €838M. After 31.5% corporate tax (€264M), distributable income = €574M. If shareholders pay 30% personal tax on dividends, effective total tax = 52.1% of pre-tax income. This is why some jurisdictions allow dividend tax credits to reduce double taxation.
3. Public vs. Private Corporate Issuers
Feature | Public Company | Private Company |
|---|---|---|
Share trading | Traded on stock exchange | No public market |
Disclosure | Extensive regulatory requirements | Minimal public disclosure |
Shareholders | Potentially millions | Small group (founders, PE, VC) |
Liquidity | High (easy to buy/sell) | Low (illiquid) |
Cost of compliance | High (SOX, SEC filings) | Low |
Access to capital | Broad (equity + debt markets) | Limited to private sources |
4. Going Public: IPO, Direct Listing, and SPAC
Initial Public Offering (IPO): Company hires investment banks as underwriters to sell newly issued shares to the public. Underwriters buy shares at a discount and resell at the offer price, bearing price risk. Provides new capital to the company but is expensive (underwriting fees, legal costs).
Direct Listing: Company lists existing shares on an exchange without issuing new shares or using underwriters. No new capital raised; lower cost; insiders can sell immediately. No lockup period. Example: Spotify, Coinbase used direct listings.
SPAC (Special Purpose Acquisition Company): A blank-check shell company raises funds via IPO first, then acquires a target operating company. The target merges with the SPAC to become public. Faster than a traditional IPO; target negotiates deal price. Risk: SPAC management may overpay for target.
Free Float = Total Shares Outstanding – Closely Held Shares
Free Float % = Free Float ÷ Total Shares Outstanding × 100