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11 Cards in this Set
- Front
- Back
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SoleProprietorship
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Anunincorporated business owned by one person. Advantages◦Canrun a business without taking any formal steps to create an organization◦Notrequired to register with the government◦Notrequired to file a separate tax return. Disadvantages◦Ownerresponsible for all of the business’s debts◦Ownerof a sole proprietorship has limited options for financing the business
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Corporations
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Limited liabilityProtects managers and investors from personal liability for the debts of the corporation and the actions of othersTransferability of interestsProvide flexibility for enterprises small and largeDurationPerpetual existence – Can continue without their founders
LogisticsCorporations involve a lot of expense and effort to create and operateTaxesBecause corporations are taxable entities, they must pay taxes and file returns |
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S Coporations |
Shareholders of S corps have: The limited liability of a corporation The tax status of a partnershipRestrictions faced are:There can only be one class of stockThere can be no more than 100 shareholdersShareholders cannot be partnerships or other corporationsShareholders must be U.S. citizens or residentsShareholders must agree that company should be an S corporation
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Close Corporations |
Acompany whose stock is not publicly traded. Commonprovisions of close corporations:◦Protectionof minority shareholders◦Transferrestrictions◦Flexibility◦Disputeresolution
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Limited Liability Companies |
An LLC offers the limited liability of a corporation and the tax status of a partnershipLimited liability – Members are not personally liable for the debts of the companyTax status – Income flows through the company to the individual members, avoiding double taxation of a corporationFormation – To organize an LLC, charter and operating agreement is necessary
Flexibility – Can have members that are corporations, partnerships, or nonresident aliensTransferability of interests – Members must obtain the unanimous permission of the remaining members before transferring ownership rightsDuration – LLC can continue in operation even after a member withdrawsGoing public – Loses its favorable tax status and is taxed as a corporation, not a partnership Changing forms – Not considered a sale and does not have the same adverse tax impactPiercing the LLC veil – If corporate shareholders do not comply with the technicalities of the law:May be held personally liable for the debts of the corporationLegal uncertainty – New form of organization and the issues of law are not clearLawsuits are expensive in both time and money ◦Choices:LLC v. corporation Taxstatus of an LLC is a major advantage over a corporationReasonsfor venture capitalists to prefer C corporationsArcanetax issuesCcorporations are easier to merge, sell, or take publicCorporationscan issue stock optionsGenerallegal uncertainty involving LLCs |
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Socially Conscious Organizations |
Hybridsare called:◦Flexible-purposeorganizations◦Benefitcorporations◦Low-profitlimited liability companies◦Communityinterest companies}Suchbusinesses focus on the interests of:◦Stakeholders◦Community◦Environmenth
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General Partnership |
Partnership: An unincorporated association of two or more co-owners who carry who operate a business for profitEach co-owner is a general partner
Taxes– Profits flow through the owners. Liability– Partner is personally liable for the debts of the enterprise ◦Whetheror not she caused them. Managementrights◦Partnersshare both profits and losses equally◦Eachpartner has an equal right to manage the business Management duties – Have a fiduciary dutyPartners are liable to the partnership for gross negligencePartners cannot compete with the partnershipPartner may not take an opportunity away from the partnership unless the other partners consentIf a partner engages in conflict of interest:He must turn over to the partnership any profits he earned from that activity Transferof ownership◦Firmcannot sell shares◦Partnerhas the right to transfer the value of partnership interest:Notthe interest itself. Formation– Easy to form◦Iftwo or more people do business together, sharing management, profits andlosses:Theyhave a partnership and subject to all rules of partnership law Partnership by estoppel exists if:Participants tell other people that they are partners, or allow other people to say that they are partnersThird party relies on this assertionThird party suffers harmTerminationDissociation: When a partner quits a partnershipPartnership can either:Buy out the departing partner(s) and continue in businessWind up the business and terminate the partnership |
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Limited Liability Partnerships |
Partners are not liable for debts of the partnership An LLP is not a taxable entity and it has the right to choose its duration
StructureLimited partnerships must have at least:One limited partner and one general partnerLiabilityLimited partners are not personally liable:General partners are liableLimited liability limited partnership:General partner is not personally liable for the debts of the partnership Taxes◦Limitedpartnerships are not taxable entities. Formation◦Generalpartners must file a certificate of limited partnership with their Secretary ofState. Management◦Generalpartners have the right to manage a limited partnership◦Limitedpartners have few management rights Transfer of ownershipLimited partners have the right to transfer the value of their partnership interestCan sell the interest itself if agreement permitsDurationLimited partnerships have perpetual existence |
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Professional Corporations |
Most professionals are allowed to incorporateProvide more liability protection than a partnershipCorporation may be liable for an individual member’s mistakes, but the innocent professionals are not at risk
LimitationsAll shareholders of the corporation must be members of the same professionRequired legal technicalities for forming and maintaining a professional corporation are:Expensive and time-consumingTax issues can be complicated |
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Joint Venture |
Partnership for a limited purposeEach organization retains its own identity
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Franchises |
Are not actually a separate form of business They can take almost any one of the ones discussed alreadyFranchising is a compromise between employment and starting your own businessFranchisees have freedom to make many choices, but are limited in other waysCan be very costly to acquireFranchisers must comply with the Federal Trade Commission’s rule
Franchiser must deliver to a potential purchaser a Franchise Disclosure Document (FDD)Purpose is to ensure that the franchiser discloses all relevant facts |
