Preparing Legal Foundation

Chapter 7: (Bruce)

Session 6
Chapter Objectives
• Discuss difference among sole proprietorship, partnership,
corporations, and limited liabilities company.
Choosing form of business organization

Sole
Partnership Corporation
proprietorship

Limited
C corporation S Corporation Liability
Company
Sole Proprietorship
Partnership
General Partnership
• Two are more people pool theirs skills and capabilities.
• Partnership agreement- legal documents.
• Unlimited liabilities

Limited partnership
• Two classes of owners-general and limited partners.
• Limited partners are liability to their share in the business.
• Less control over the business.
• Limited partnership agreement.
• Formed to raise the money
Partnership
Corporations
• Corporations are organized as either C corporations or subchapter
S corporations.
C Corporation
• Separate entity from its owners.
• Shareholders have shield of their personal liability for the debt and
obligation of the corporation.
• Board hires officers to run day-to-day activities.
• Two classes of stocks.
• Common stock
• Preferred stock.
• Corporation are formed by filing article of incorporation.
C Corporation
• Corporation are formed by filing article of incorporation.
• Corporate name, purpose, authorized number of stock shares, classes of
stock and other conditions.
• Separate taxation- double taxation.
• Liquidity of ownership- stock selling and buying.
• Ability to share stocks to employees.
C Corporations
Subchapter S Corporation
• Combines advantages of partnership and C Corporation.
• Profit/losses are not subject to double taxation.
• Owners are not subject to personal liability.
Limited Liability Company.
• All partners enjoy limited liability.
• No double taxation.
• Members are titled as members rather than shareholders.
• It is more flexible in form of number of members as compared to S
corporation.
• It can not be publically traded.
Class Activity
• Tom Andersen owns an electronics firm in Wichita. He has told
you that he has been suffering some cash flow problems, but
has avoided having to borrow money by letting some of his
bills run late and by cutting corners on meeting some of his
contractual obligations. When you raised your eyebrows as he
told you this, he said, “Don’t worry; I’m really not nervous
about it. I have some big orders coming in, and am confident I
can catch up on my bills and renegotiate my contracts then.”
Do you think Tom has a sound strategy? What could he be
doing differently? What are the downsides to what Tom is
currently doing?
End of Chapter.