Forms of Business Ownership Its just paper All
Forms of Business Ownership It’s just paper. All I own is a pickup truck and a little Walmart stock. ………………. . Sam Walton 1
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 2
Sole Proprietorship Advantages q Profit incentive q Total decisionmaking q Profit/Loss on Owner’s Tax Return; Business Doesn’t File 3
Sole Proprietorship Disadvantages q Unlimited personal liability q q Limited skills and abilities Limited access to capital 4
Partnership An association of two or more people who coown a business for the purpose of making a profit 5
Partnership Advantages q Easy to establish q Complementary skills q Division of profits q Larger pool of capital q Business doesn’t file tax return. q Partners show profit/loss on individual tax returns. (K-1 Form) 6
Partnership Disadvantages: q q Lack of continuity Potential for personality and authority conflicts Partners bound by law of agency** =Liability Issues 7
Corporations A separate legal entity apart from its owners which receives the right to exist from the state in which it is incorporated. Owned by stockholders. (Common or Preferred Stock) 8
Corporations Advantages for Owners q Limited liability for stockholders! q Ability to attract capital by offering stock. q Dividends decided by Board. Stockholders report dividends on their tax returns. q Corporation itself pays Federal Taxes. 9
Corporations Disadvantages q Double taxation q Legal requirements and red tape 10
An S Corporation A corporation that retains the legal characteristics of a regular C corporation but has the advantage of not paying federal tax. Criteria: Common stock only; No Preferred Stock No more than 100 shareholders 11
S Corporation Advantages q All of advantages of a regular C corporation. Limited liability for shareholders! Personal assets safe! q Corporation itself doesn’t pay Federal Tax (like C Corporation does) q Profit/loss on stockholders’ individual tax returns. 12
Limited Liability Company A relatively new form of ownership that began in 1977 in U. S. MT added it in 1990 s. Limited liability – protection from personal liability for debts of the business. Centralized management. Owners are taxed individually on their share of profit or loss. 13
Limited Liability Corporation Articles of Organization – Secretary of State. No cap on member numbers n One person can be an LLC! n ~$70 filing fee. Owners are called members, not stockholders. n Operating agreement must be filed. (Rights, duties of each member. Distribution of profit/loss. ) n 14
Limited Liability Corporation n n Limited personal liability No limit on number of members LLC does not pay federal taxes; members do on their share of income on personal tax returns. Flexibility to divide income as owners see fit 15
Assignment for Tomorrow 1. Research Joint Venture as a form of business ownership. What is it? 2. Who is Montana’s Secretary of State? 3. What is the current filing fee for an LLC in MT? 16
- Slides: 16