Title: Types of Business Ownership
||October 12, 2006
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Unlimited liability of at least one partner and possibly all partners, except in limited partnership debts.
b. The life of a partnership is unstable, since changing partners by adding new ones or by death or departure of partners causes the partnership tp terminate...
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Obtaining large sums of capital is relatively difficult, as financing cannot be obtained from the public through a stock offering.
d. The acts of just one partner, even unauthorized acts in many cases, bind all partners.
e. An individual partnership interest cannot be sold or transferred easily...
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|Business Entity Regulations
Starting a business is exciting and challenging. A big part that plays into the success or failure of a business is whether or not the business fulfilled the obligations to the government...
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The easiest business organizational structure is the sole proprietorship. Having no restrictions on the size of the business is an advantage to the sole proprietorship...
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|Legal forms of business
"Relation which subsists between persons carrying on a business with common view to profit"
In a Partnership:
? You want it to be really easy to set up
? You can lose all your money and even your possessions if you fail
? You want to keep all you financial affairs private
? You want to share control with a few other people
? You want to share profits with a few other people
? You want other people to be able to make decisions without consulting you, even though you may lose money because of this
? You want to be able to sell your business to someone else
Deed of Partnership
This is a legal document that states partners' rights in the event of a dispute, it covers the following issues:
? How much capital each partner will contribute
? How profits and losses are shared amongst the partners
? The procedure for ending a partnership
? How much control each partner has
? Rules for taking on new partners
A firm might find that each partner specialises in one aspect of finance, for example: tax, law, investments, or VAT returns...
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|Operational Procedures for a business plan
• The Preview
• The Description
• The Marketing Plan
• The Financial Plan
• The Management Plan
• The Summary
Before you can go into business, you must select a legal structure...
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Type of Entity Main Advantages Main Drawbacks
Sole Proprietorship Simple and inexpensive to create and operate
Owner reports profit or loss on his or her personal tax return Owner personally liable for business debts
General Partnership Simple and inexpensive to create and operate
Owners (partners) report their share of profit or loss on their personal tax returns Owners (partners) personally liable for business debts
Limited Partnership Limited partners have limited personal liability for business debts as long as they don't participate in management
General partners can raise cash without involving outside investors in management of business General partners personally liable for business debts
More expensive to create than general partnership
Suitable mainly for companies that invest in real estate
Regular Corporation Owners have limited personal liability for business debts
Fringe benefits can be deducted as business expense
Owners can split corporate profit among owners and corporation, paying lower overall tax rate More expensive to create than partnership or sole proprietorship
Paperwork can seem burdensome to some owners
Separate taxable entity
S Corporation Owners have limited personal liability for business debts
Owners report their share of corporate profit or loss on their personal tax returns
Owners can use corporate loss to offset income from other sources More expensive to create than partnership or sole proprietorship
More paperwork than for a limited liability company which offers similar advantages
Income must be allocated to owners according to their ownership interests
Fringe benefits limited for owners who own more than 2% of shares
Professional Corporation Owners have no personal liability for malpractice of other owners More expensive to create than partnership or sole proprietorship
Paperwork can seem burdensome to some owners
All owners must belong to the same profession
Nonprofit Corporation Corporation doesn't pay income taxes
Contributions to charitable corporation are tax-deductible
Fringe benefits can be deducted as business expense Full tax advantages available only to groups organized for charitable, scientific, educational, literary or religious purposes
Property transferred to corporation stays there; if corporation ends, property must go to another nonprofit
Limited Liability Company Owners have limited personal liability for business debts even if they participate in management
Profit and loss can be allocated differently than ownership interests
IRS rules now allow LLCs to choose between being taxed as partnership or corporation More expensive to create than partnership or sole proprietorship
State laws for creating LLCs may not reflect latest federal tax changes
Professional Limited Liability Company Same advantages as a regular limited liability company
Gives state licensed professionals a way to enjoy those advantages Same as for a regular limited liability company
Members must all belong to the same profession
Limited Liability Partnership Mostly of interest to partners in old line professions such as law, medicine and accounting
Owners (partners) aren't personally liable for the malpractice of other partners
Owners report their share of profit or loss on their personal tax returns Unlike a limited liability company or a professional limited liability company, owners (partners) remain personally liable for many types of obligations owed to business creditors, lenders and landlords
Not available in all states
Often limited to a short list of professions
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With more businesses opening up everyday, concerns regarding business and personal liability have heightened. This paper will discuss the roles of the limited liability partnership as well as the corporation...
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