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 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 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

Corporationlawyers, accountants,
doctors, dentists, etc.
Joint Venture-partnership
formed for a specific
purpose