Professional Documents
Culture Documents
Copyright
Key: Understanding the characteristics of each form of ownership and how well they match an entrepreneurs business and personal circumstances.
Copyright
3-2
Tax considerations Liability exposure Start-up and future capital requirements Control Managerial ability Business goals Management succession plans Cost of formation
Copyright
3-3
Sole Proprietorship
Partnership
Corporation
S Corporation
Limited Liability Company Joint Venture
Copyright
3-4
Copyright
3-5
Copyright
3-6
Sole Proprietorship
A business that is owned and operated by one person. The enterprise has no existence apart from its owner. To establish a sole proprietorship, a person merely needs to obtain whatever local and state licenses are necessary to begin operations.
77
Copyright
Advantages Simple to create Least costly form to begin Profit incentive Total decision making authority No special legal restrictions Easy to discontinue
Disadvantages Unlimited personal liability Limited skills and capabilities Feeling of isolation Limited access to capital Lack of continuity
Copyright
3-8
Tax Treatment Income and losses pass through to owner and are taxed at personal rates
Copyright
3-9
3.5. Partnership
An association of two or more people who co-own a business for the purpose of making a profit. Always wise to create a partnership agreement. The best partnerships are built on trust and respect.
Copyright
3 - 10
General partners
Take an active role in managing a business. Have unlimited liability for the partnerships debts. Every partnership must have at least one general partner.
Limited partners
Cannot participate in the day-to-day management of a company. Have limited liability for the partnerships debts.
Copyright
3 - 11
A partnership composed of at least one general partner and one or more limited partners. A general partner in this partnership is treated exactly as in a general partnership. A limited partner has limited liability and is treated as an investor in the business.
Copyright
3 - 12
Advantages Easy to establish Complementary skills of partners Division of profits Larger pool of capital Ability to attract limited partners Minimal government regulation Flexibility Taxation
Copyright
Disadvantages Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnership interest without dissolving the partnership Lack of continuity Potential for personality and authority conflicts Partners bound by law of agency
3 - 13
Ownership Requirements
Two or more owners
Tax Treatment Income and losses pass through to partners and are taxed at personal rates; flexibility in profit-loss allocations to partners
Advantages Ease of formation Pooled talent Pooled resources Somewhat easier access to financing Some tax benefits
Ch, 3: Forms of Business Ownership Copyright
Drawbacks Unlimited personal liability Divided authority and decisions Potential for conflict Continuity of transfer of ownership
3 - 14
Ownership Requirements
Tax Treatment
Income and losses pass through to partners and are taxed at personal rates; flexibility in profitloss allocations to partners
Drawbacks Cost and complexity of forming can be high Limited partners cannot participate in management of business without losing liability protection
3 - 15
Copyright
Domestic a corporation doing business in the country in which it is incorporated. Foreign a corporation doing business in a country other than the country in which it is incorporated. Alien a corporation formed in another country but doing business in the Cambodia. Publicly held a corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges. Closely held a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.
Copyright
Types of corporations:
3 - 16
Advantages Limited liability of stockholders Ability to attract capital Ability to continue indefinitely Transferable ownership
Copyright
Disadvantages
Cost and time of incorporation process Double taxation Potential for diminished managerial incentives Legal requirements and regulatory red tape Potential loss of control by founder(s)
3 - 17
3 - 18
Ownership Requirements Unlimited number of members; flexible membership arrangements for voting rights and income
Tax Treatment Income and losses pass through to partners and are taxed at personal rates; flexibility in profit-loss allocations to partners
Liability
Limited
Advantages
Greater flexibility Not constrained by regulations on C and S corporations Taxed as partnership, not as corporation
Ch, 3: Forms of Business Ownership Copyright
Drawbacks
Cost of switching from one form to this can be high Need legal and financial advice in forming operating agreement
3 - 19
Copyright
5 - 20
3 - 21
Copyright
3 - 22
Legal Concepts
Growth and Continuity of the Venture
723 Copyright
A. Personnel Law
1. Hiring and firing policies 2. Equal Employment Opportunity Commission 3. Collective bargaining 1. Legal contracts 2. Sales contracts 3. Leases
B. Contract Law
724
Copyright
A. Tax considerations
B. Governmental regulations
725
Copyright
Company name Business purpose Names and addresses of incorporators Names and addresses of initial officers and directors Address of corporations home office
Copyright
3 - 26