Forms of Business

Ownership

Its 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 decision-
making
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 co-
own a business
for the purpose of
making a profit

A partnership agreement or the Uniform Partnership Act

 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 passive
 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 members 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 Corporation-
lawyers, accountants, doctors,
dentists, etc.
Joint Venture-partnership
formed for a specific purpose