MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
What factors should be considered before deciding on a form of ownership?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Tax considerations2. Liability exposure3. Start-up and future capital requirements4. Control5. Managerial ability6. Business goals7. Management succession plans8. Cost of formation
Factors to Consider when choosing a Form of Ownership:
What are the major Forms of Ownership?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Major Forms of Ownership:
1. Sole Proprietorship2. General Partnership3. Limited Partnership (LP)4. Limited Liability Partnership (LLP)5. Corporation6. S Corporation7. Professional Corporation (PC)8. Limited Liability Company (LLC)9. Joint Venture (JV)
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
What are the advantages of a Sole Proprietorship?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Advantages of the Sole Proprietorship:
1. Simple to create
2. Least costly form to begin
3. Profit incentive
4. Total decision making authority
5. No special legal restrictions
6. Easy to discontinue
What are the dis-advantages of a Sole Proprietorship?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Disadvantages of the Sole Proprietorship:
1. Unlimited personal liability
2. Limited skills and capabilities
3. Feelings of isolation
4. Limited access to capital
5. Lack of continuity of the business
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Define Partnership…
Sole Proprietorship
Claims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s Creditors
Sole Proprietor’s Personal Assets
Sole Proprietor’s Personal Assets
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. An association of two or more people who co-own a business for the purpose of making a profit.
2. Always wise to create a partnership agreement.
3. The best partnerships are built on trust and respect.
Partnership Form of Ownership:
What are the Advantages of a Partnership?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Easy to establish
2. Complementary skills of partners
3. Division of profits
4. Larger pool of capital
5. Ability to attract limited partners
Advantages of Partnership Organization:
What are the Disadvantages of a Partnership?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Unlimited liability of at least one partner2. Capital accumulation3. Difficulty in disposing of partnership interest
without dissolving the partnership4. Potential for personality and authority conflicts5. Partners bound by law of agency
Dis-Advantages of Partnership Organization:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
General Partnership Form of Ownership
Claims of Partnership’s Creditors
Claims of Partnership’s Creditors
Partnership’s AssetsPartnership’s AssetsGeneralPartner’sPersonalAssets
GeneralPartner’sPersonalAssets
GeneralPartner’sPersonalAssets
GeneralPartner’sPersonalAssets
What is a Limited Partnership?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
A partnership composed of at least one general partner and one or more limited partners.
A general partner in this partnership is treated exactly as in a general partnership.
A limited partner has limited liability and is treated as an
investor in the business.
Limited Partnership Form of Ownership:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Claims of Partnership’s Creditors
Claims of Partnership’s Creditors
Partnership’s AssetsPartnership’s AssetsGeneralPartner’sPersonalAssets
GeneralPartner’sPersonalAssets
LimitedPartner’sPersonalAssets
LimitedPartner’sPersonalAssets
BARRIER
Limited Partnership Form of Ownership:
What is an LLP?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Limited Liability Partnerships Form of Ownership
1. All partners in the business are limited partners.2. Gives the advantage of limited liability for the debts of
the partnership.3. Does not pay taxes – income is passed through to the
limited partners who pay taxes on their share of the company’s income.
4. Limited to certain professions… attorney, cpas, etc.
Define Corporation.
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. A separate legal entity from its owners.
2. Unlimited Life
3. Taxable
What Types of Corporations are there?
Corporation Form of Ownership
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Types of corporations:1. Domestic – a corporation doing business in the
state in which it is incorporated.2. Foreign – a corporation doing business in a state
other than the state in which it is incorporated. 3. Alien – a corporation formed in another country
but doing business in the United States.
Corporation Form of Ownership
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Corporation Form of OwnershipTypes of corporations:1. Publicly held – a corporation that has a large
number of shareholders and whose stock usually is traded on one of the large stock exchanges.
2. Closely held – a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.
What are the advantages of a corporation?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Limited liability of stockholders2. Ability to attract capital3. Ability to continue indefinitely4. Transferable ownership
Advantages of Corporation:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Corporation
Claims of Corporation’s CreditorsClaims of Corporation’s Creditors
Corporation’s AssetsCorporation’s Assets
Shareholder’sPersonal AssetsShareholder’s
Personal AssetsShareholder’s
Personal AssetsShareholder’s
Personal Assets
barrier barrier barrier barrier
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
PartnershipClaims of Partnership’s CreditorsClaims of Partnership’s Creditors
Partnership’s AssetsPartnership’s Assets
CorporateGeneralPartnerAssets
CorporateGeneralPartnerAssets Limited
Partner’sPersonalAssets
LimitedPartner’sPersonalAssets
BARRIER
BARRIER
Corporate ShareholdersCorporate
ShareholdersWhat are Disadvantages of Coropration?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Cost and time of incorporation process2. Double taxation3. Potential for diminished managerial incentives4. Legal requirements and regulatory “red tape”5. Potential loss of control by founder(s)
Dis-Advantages of Corporation:
What informaiton goes into the Articles of Incorporation?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Name2. Purpose3. Life Span… or unending4. Incorporator(s) Information5. Place of Business6. Shares Authorized7. Capital Required8. Preemptive Rights – Anti-dilutive Provisions9. Shareholder Restrictions10. Officer(s) Information11. Rules - Bylaws
Articles of Incorporation/Charter:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
S Corporation1. No different from any other corporation from a legal
perspective.
2. An S corporation is taxed like a partnership, passing all of its profits (or losses) through to individual shareholders.
3. To elect “S” status, all shareholders must consent, and the corporation must file with the IRS within the first 75 days of its tax year.
What are the Advantages of an S Corp?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
What are the Dis-Advantages of an S Corp?
S Corporation Advantages:
Retains all of the advantages of regular corporation:
1. Continuity of existence
2. Transferability of ownership
3. Limited personal liability for owners
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Entrepreneurs considering both S and C status should review the impact of the decision on their companies.
2. S corporation status is usually beneficial to start-up companies anticipating net losses because founders can use the loss to offset other income, and lower their tax bill.
S Corporation Dis-Advantages:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
S Corporation
Claims of S Corporation’s CreditorsClaims of S Corporation’s Creditors
S Corporation’s AssetsS Corporation’s Assets
Shareholder’sPersonal AssetsShareholder’s
Personal AssetsShareholder’s
Personal AssetsShareholder’s
Personal Assets
barrier barrier barrier barrier
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Resembles an S Corporation but is not subject to the same restrictions.
Two documents required:
1. Articles of organization
2. Operating agreement
Limited Liability Company (LLC):
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Limited Liability Company
Claims of LLC’s CreditorsClaims of LLC’s Creditors
LLC’s AssetsLLC’s Assets
Member’sPersonal Assets
Member’sPersonal Assets
Member’sPersonal Assets
Member’sPersonal Assets
barrier barrier barrier barrier
What is a Professional Corporation?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Designed for professions – lawyers, doctors, dentists, accountants and other professionals
Created in the same manner as a corporation Identified by the abbreviations:
► P.C. – Professional Corporation► P.A. – Professional Association► S.C. – Service Corporation
Professional Corporation:
What Limitation must a PC comply with?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Professional Corporation Limitations:
1. Shares Owned By Licensed Professionals.2. At least One Incorporator must be Licensed.3. At least One Directory must be Licensed.4. Articles must designate Personal Services to be
provided.5. Licensing Board Certifies that All Shares are held by
Duly Licensed Individuals.
What is a Joint Venture?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Much like a partnership, but it:
1. Is formed for a specific purpose
2. Has a beginning and an end
Joint Venture:
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
Is there a Form of Ownership that is better than the others?
Is there a Form of Ownership that is worse that the others?
Is there a Form of Ownership that is evil?
MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership
1. Tax considerations2. Liability exposure3. Start-up and future capital requirements4. Control5. Managerial ability6. Business goals7. Management succession plans8. Cost of formation
Factors to Consider when choosing a Form of Ownership: