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 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 Corporation-
lawyers, accountants,
doctors, dentists, etc.
Joint Venture-partnership

formed for a specific

purpose