Forms Of Business Ownership 4z473q

Forms of Business Ownership It’s just paper. All I own is a pickup truck and a little Walmart stock. ………………………………..Sam Walton

Evaluation Criteria   

   



Tax consideration Liability exposure Start-up and future capital requirement Control Managerial ability Business goals Management succession plans Cost of formation

Sole Proprietorship

A business owned and managed by one individual; the business and the owner are one and the same in the eyes of the law

Sole Proprietorship Advantages  Simple to create  Least costly form  Profit incentive  Total decisionmaking  No special legal restrictions  Easy to discontinue

Sole Proprietorship Disadvantages  Unlimited personal liability  Limited skills and abilities  Feelings of isolation  Limited access to capital  Lack of continuity of business

Partnership An association of two or more people who coown a business for the purpose of making a profit

A partnership agreement or the Uniform Partnersh

Partnership Advantages  Easy to establish  Complementary skills  Division of profits  Larger pool of capital  Ability to attract limited partners  Little governmental regulation  Flexibility  Taxation

Partnership Disadvantages  Unlimited liability of at least one  Difficulty in disposing of interest  Lack of continuity  Potential for personality and authority conflicts  Partners bound by law of agency

Special Partnerships 





Limited partnership-composed of at least one general partner and at least one limited partner Limited liability partnership-a special type of limited partnership, in which all partners are limited partners Master limited partnership-a partnership whose shares are traded on stock exchanges, just like corporations

Corporations A separate legal entity apart from its owners which receives the right to exist from the state in which in which it is incorporated     

Domestic Foreign Alien Publicly held Closely held

Corporations Certificate of Incorporation  Name  Statement of purpose  Time horizon  Names and addresses of incorporators  Place of business  Capital stock authorization’  Capital required at time of incorporation  Provisions for preemptive rights  Restrictions on transfering shares  Names and addresses of officers  By-laws

Corporations Advantages  Limited liability of stockholders  Ability to attract capital  Ability to continue indefinitely  Transferable ownership

Corporations Disadvantages  Cost and time in incorporating  Double taxation  Potential for diminished incentives  Legal requirements and red tape  Potential loss of control

An S Corporation A corporation that retains the legal characteristics of a regular C corporation but has the advantage of being taxed as a partnership if it meets certain criteria: Domestic US corporation No nonresident alien stockholder One class of common stock Limit shareholders No more than 100 shareholders Less than 25% of gross revenues ive

S Corporation Advantages  All of advantages of a regular C corporation  Single taxation  Avoids tax on appreciation of asset sold  Pay SSS for employees  Different lines of businesses as subsidiaries, simpler tax filing

S Corporation 

  

Highly profitable service companies with large number of shareholders for whom profits are compensation or retirement benefits Fast-growing companies that must retain earnings to finance growth Corporations in which the loss of benefits exceed tax savings Corporations with sizable net operating losses

S Corporation Liquidating  Pay all taxes and debts  Obtain written approval of shareholders to dissolve company  File statement of intent to dissolve with secretary of state  Distribute all remaining assets

Limited Liability Company A relatively new form of ownership that, like an S corporation, is a cross between a partnership and a corporation; it is not subject to many of the restrictions imposed on S corporations; only 2 of the following: Limited liability Continuity of life Free transferability of interest Centralized management

Limited Liability Corporation 



Articles of organization-name and address, method of management, duration, names and addresses of each organizer Operating agreement-no more than 2 of: limited liability, continuity of life, free transferability of interest, centralized management

Limited Liability Corporation    

  

Limited personal liability No limit on number of shareholders No ban on nonresident alien No restriction on a member’s ability to manage the company Avoids double taxation Flexibility to divide income as owners see fit Not subject to self-employment tax except for managing member

 Professional

Corporationlawyers, ants, doctors, dentists, etc.  t Venture-partnership formed for a specific purpose