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Law in Enforcement Introduction To Financial Management
Law in Enforcement Introduction To Financial Management
SEMESTER : SEM 2
CONTENTS
N QUESTION PAGE
O
1. TYPE OF BUSINESS
I. SOLE PROPRIETORSHIP
II. PARTNERSHIP
III. CORPORATION
2. GROUP OF INDUSTRY
I. PRIMARY INDUSTRY
3. REFERENCE
A form of business in which one person owns all the assets of the business, in contrast
to a partnership or a corporation. A person who does business for himself is engaged in the
operation of a sole proprietorship. Anyone who does business without formally creating a
business organization is a sole proprietor. Many small businesses operate as sole
proprietorships. Professionals, consultants, and other service businesses that require
minimum amounts of capital often operate this way. A sole proprietorship is not a separate
legal entity, like a partnership or a corporation. No legal formalities are necessary to create a
sole proprietorship, other than appropriate licensing to conduct business and registration of a
business name if it differs from that of the sole proprietor. Because a sole proprietorship is
not a separate legal entity, it is not itself a taxable entity. The sole proprietor must report
income and expenses from the business on Schedule C of her or his personal federal income
tax return.
A major concern for persons organizing a business enterprise is limiting the extent to
which their personal assets, unrelated to the business itself, are subject to claims of business
creditors. A sole proprietorship gives the least protection because the personal liability of the
sole proprietor is generally unlimited. Both the business assets and the personal assets of the
sole proprietor are subject to claims of the sole proprietorship's creditors. In addition, existing
liabilities of the sole proprietor will not be extinguished upon the dissolution or sale of the
sole proprietorship. Unlike the managers of a corporation or a partnership, a sole proprietor
has total flexibility in managing and controlling the business. The organizational expenses
and level of formality in a sole proprietorship are minimal as compared with those of other
business organizations. However, because a sole proprietorship is not a separate legal entity,
it terminates when the sole proprietor becomes disabled, retires, or dies. As a result, a sole
proprietorship lacks business continuity and does not have a perpetual existence as does a
corporation.
For working capital, a sole proprietorship is generally limited to the individual funds of
the sole proprietor, along with any loans from outsiders willing to provide extra capital.
During her lifetime, a sole proprietor can sell or give away any asset because the business is
not legally separate from the sole proprietor. At the death of the sole proprietor, the business
is usually dissolved. The proprietor's estate, however, can sell the assets or continue the
business.
Liability: The business owner will be held directly responsible for any losses, debts, or
violations coming from the business. For example if the business must pay any debts,
these will be satisfied from the owners own personal funds. The owner could be sued for
any unlawful acts committed by the employees. This is drastically different from
corporations, wherein the members enjoy limited liability (i.e., they cannot be held liable
for losses or violations)
Taxes: While there are many tax benefits to sole proprietorships, a main drawback is that
the owner must pay self-employment taxes. Also, some tax benefits may not be
deductible, such as health insurance premiums for employees
Lack of continuity: The business does not continue if the owner becomes deceased or
incapacitated, since they are treated as one and the same. Upon the owners death, the
business is liquidated and becomes part of the owners personal estate, to be distributed
to beneficiaries. This can result in heavy tax consequences on beneficiaries due to
inheritance taxes and estate taxes
Difficulty in raising capital: Since the initial funds are usually provided by the owner, it can
be difficult to generate capital. Sole proprietorships do not issue stocks or other money-
generating investments like corporations do.
PARTNERSHIP
A partnership is an arrangement where parties, known as partners, agree to cooperate to
advance their mutual interests. The partners in a partnership may be individuals, businesses,
interest-based organizations, schools, governments or combinations. Organizations may
partner together to increase the likelihood of each achieving their mission and to amplify their
reach. A partnership may result in issuing and holding equity or may be only governed by a
contract. Partnership agreements can be formed in the following areas:
Partnerships present the involved parties with complex negotiation and special challenges
that must be navigated unto agreement. Overarching goals, levels of give-and-take, areas of
responsibility, lines of authority and succession, how success is evaluated and distributed, and
often a variety of other factors must all be negotiated. Once agreement is reached, the
partnership is typically enforceable by civil law, especially if well documented. Partners who
wish to make their agreement affirmatively explicit and enforceable typically draw up
Articles of Partnership. Trust and pragmatism are also essential as it cannot be expected that
everything can be written in the initial partnership agreement, therefore quality governance
[3] and clear communication are critical success factors in the long run. It is common for
information about formally partnered entities to be made public, such as through a press
release, a newspaper ad, or public records laws.
While industrial partnerships stand to amplify mutual interests and accelerate success,
some forms of collaboration may be considered ethically problematic. When a politician, for
example, partners with a corporation to advance the latter's interest in exchange for some
benefit, a conflict of interest results; consequentially, the public good may suffer. While
technically lawful in some jurisdictions, such practice is broadly viewed negatively or as
corruption.
Partnerships recognized by a government body may enjoy special benefits from taxation
policy. Among developed countries, for example, business partnerships are often favored over
corporations in taxation policy, since dividend taxes only occur on profit before they are
distributed to the partners. However, depending on the partnership structure and the
jurisdiction in which it operates, owners of a partnership may be exposed to greater personal
liability than they would as shareholders of a corporation. In such countries, partnerships are
often regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free
market competition. Enforcement of the laws, however, varies considerably. Domestic
partnerships recognized by governments typically enjoy tax benefits, as well.
ADVANTAGES PARTNERSHIP
Capital Due to the nature of the business, the partners will fund the business with
startup capital. This means that the more partners there are, the more money they can
put into the business, which will allow better flexibility and more potential for
growth. It also means more potential profit, which will be equally shared between the
partners.
Flexibility A partnership is generally easier to form, manage and run. They are less
strictly regulated than companies, in terms of the laws governing the formation and
because the partners have the only say in the way the business is run (without
interference by shareholders) they are far more flexible in terms of management, as
long as all the partners can agree.
Shared Responsibility Partners can share the responsibility of the running of the
business. This will allow them to make the most of their abilities. Rather than splitting
the management and taking an equal share of each business task, they might well split
the work according to their skills. So if one partner is good with figures, they might
deal with the book keeping and accounts, while the other partner might have a flare
for sales and therefore be the main sales person for the business.
Decision Making Partners share the decision making and can help each other out
when they need to. More partners means more brains that can be picked for business
ideas and for the solving of problems that the business encounters.
DISADVANTAGES PARTNERSHIP
Corporation
A corporation (sometimes referred to as a C corporation) is an independent legal entity
owned by shareholders. This means that the corporation itself, not the shareholders that own
it, is held legally liable for the actions and debts the business incurs. Corporations are more
complex than other business structures because they tend to have costly administrative fees
and complex tax and legal requirements. Because of these issues, corporations are generally
suggested for established, larger companies with multiple employees.
For businesses in that position, corporations offer the ability to sell ownership shares in the
business through stock offerings. Going public through an initial public offering (IPO) is a
major selling point in attracting investment capital and high quality employees. A corporation
is formed under the laws of the state in which it is registered. To form a corporation youll
need to establish your business name and register your legal name with your state
government. If you choose to operate under a name different than the officially registered
name, youll most likely have to file a fictitious name (also known as an assumed name, trade
name, or DBA name, short for "doing business as"). State laws vary, but generally
corporations must include a corporate designation (Corporation, Incorporated, Limited) at the
end of the business name.
To register your business as a corporation, you need to file certain documents, typically
articles of incorporation, with your states Secretary of State Office. Some states require
corporations to establish directors and issue stock certificates to initial shareholders in the
registration process. Contact your state business entity registration office to find out about
specific filing requirements in the state where you form your business. Once your business is
registered, you must obtain business licenses and permits. Regulations vary by industry, state
and locality. Refer to our Business License and Permit guide to find a listing of federal, state
and local permits, licenses and registrations you'll need to run a business.
Corporations are required to pay federal, state, and in some cases, local taxes. Most
businesses must register with the IRS and state and local revenue agencies, and receive a tax
ID number or permit. Unlike sole proprietors and partnerships, corporations pay income tax
on their profits. In some cases, corporations are taxed twice - first, when the company makes
a profit, and again when dividends are paid to shareholders on their personal tax returns.
Advantages of a Corporation
Limited Liability. When it comes to taking responsibility for business debts and
actions of a corporation, shareholders personal assets are protected. Shareholders can
generally only be held accountable for their investment in stock of the company.
Ability to Generate Capital. Corporations have an advantage when it comes to raising
capital for their business - the ability to raise funds through the sale of stock.
Corporate Tax Treatment. Corporations file taxes separately from their owners.
Owners of a corporation only pay taxes on corporate profits paid to them in the form
of salaries, bonuses, and dividends, while any additional profits are awarded a
corporate tax rate, which is usually lower than a personal income tax rate.
Attractive to Potential Employees. Corporations are generally able to attract and hire
high-quality and motivated employees because they offer competitive benefits and the
potential for partial ownership through stock options.
Disadvantages of a Corporation
Time and Money. Corporations are costly and time-consuming ventures to start and
operate. Incorporating requires start-up, operating and tax costs that most other
structures do not require.
Double Taxing. In some cases, corporations are taxed twice - first, when the company
makes a profit, and again when dividends are paid to shareholders.
Additional Paperwork. Because corporations are highly regulated by federal, state,
and in some cases local agencies, there are increased paperwork and recordkeeping
burdens associated with this entity
Secondary industries take various raw materials and manufactures them into finished
goods. Construction, smelting, automobile manufacturing, textiles, energy utilities, breweries
and bakeries are all types of companies involved in secondary economic activity. Assembling
large items from parts is also part of secondary industries.
The BBC explains that tertiary industries provide services. Transportation, health care,
food service, retail sales, advertising, entertainment, tourism, banking and law are all
examples of tertiary-level sectors of the economy. More than 80 percent of Americans are
tertiary workers providing services to primary and secondary workers.
Each of these three levels are interdependent on each other. Without raw materials,
manufacturers can't make finished goods and workers are unable to sell or transport these
manufactured products to customers.
PRIMARY INDUSTRY
An industry involved in the extraction and collection of natural resources, such as copper
and timber, as well as by activities such as farming and fishing. A company in a primary
industry can also be involved in turning natural resources into products. Primary industry
tends to make up a larger portion of the economy of developing countries than they do for
developed countries.
Primary industries are those that harvest or extract raw materials from nature; they
include agriculture, oil and gas extraction, logging and forestry, mining, fishing and trapping.
In many countries, primary industries provide raw materials for manufacturing and heavy
industries and are a stable economic base for rural communities, according to Statistics
Canada. As a country develops, the percentage of its population working in the primary
industries usually declines
SECONDARY INDUSTRIES
Primary industries include all industries that produce raw materials, such as wool and
wheat. Primary industries make use of natural resources, such as forests, to produce their
goods. Secondary industries take raw materials and turn them into retail items. For example,
in the textile industry, manufacturers produce clothing from cotton or wool. Tertiary
industries deal with the framework of business and provide services, such as transportation,
banking and sales.Secondary industries are the manufacturing and assembly industries, which
use raw materials to manufacture finished products. Such industries include food processing
and steel manufacture.
TERTIARY INDUSTRIES
Tertiary industries are the service industries. Professionals who work in this sector include
teachers, lawyers, and travel and real estate agents. The tourist, financial and computer
industries are all part of this sector.
The tertiary industry is the segment of the economy that provides services to its
consumers; this includes a wide range of businesses such as financial institutions, schools and
restaurants. It is also known as the tertiary sector or service industry/sector. The tertiary
industry is one of three industry types in a developed economy, the other two being the
primary, or raw materials, and secondary, or goods production, industries. As an economy
becomes more developed, it shifts its focus from primary to secondary and tertiary industries.
For purposes of finance and market research, market-based classification systems such as the
Global Industry Classification Standard and the Industry Classification Benchmark are used
to classify businesses that participate in the service sector. Unlike governmental classification
systems, the first level of market-based classification systems divides the economy into
functionally related markets or industries. The second or third level of these hierarchies then
reflects whether goods or services are produced.
REFERENCE
http://www.investopedia.com/terms/t/tertiaryindustry.asp#ixzz4YgirMOct
https://www.google.com/webhp?
hl=en&sa=X&ved=0ahUKEwjanPGkzI3SAhXDOo8KHTdKBpcQPAgD#hl=en&q=example
+of+tertiary+industries