Forms of Business

Ownership

It’s 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 member’s 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