Forms of Ownership

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					Forms of
Considerations in Making
Ownership Choice
 Tax considerations
 Liability exposure
 Capital requirements
 Control
 Cost
Sole Proprietorship

 Owned and managed by one person
 Advantages:
     simple and inexpensive to set up and get
      out of
     all the money and control is yours
 Disadvantages:
     unlimited personal liability
     limited capabilities
     limited access to funds

 Association of two or more who co-own
  a business in order to make a profit
 Partnership Agreement (or Uniform
  Partnership Act) specifies:
     How profits/losses are shared
     What each owner’s interest in business is
     How each partner will manage operations
Partnership Advantages

 Simple to set up
 Profits divided fairly
 Additional skill sets
 More access to capital than sole
 Can include limited partners
Partnership Disadvantages

 Unlimited liability
 Less access to capital than corporations
 Hard to get out of
 Potential for conflict
Limited Partnerships

 At least 1 general and 1 limited partner

 Limited partners are treated as investors
Limited Liability Partnerships
 All partners are limited partners, having
  only a limited liability for the debts of the
 Restricted to professionals (such as
  lawyers, accountants)

 Separate legal entity that may engage in
  business, own property, and pay taxes
 Requires Certificate of Incorporation and
  annual financial reports be filed with
  Secretary of State
Types of Corporations

 Domestic/foreign/alien

 Publicly held/closely held
Corporation Advantages

 Limited liability of stockholders
 Ability to attract capital
 Transferable ownership
Corporation Disadvantages

 More difficult to set up and maintain
 Double taxation
 Potential loss of control
S Corporation

 S Corporation
     legally like a C corp but is taxed as a
 Advantages:
     Same as C corp PLUS
     profits pass to shareholders – taxed at
      individual rate
S-Corporation (con’t)

 Disadvantages:
     Same paperwork and control issues as C
      corp PLUS
     Other restrictions including limit of 100
      shareholders, only domestic shareholders
Limited Liability Company

 Tax advantage of a partnership, legal
  protection of a corporation
 Requires Articles of Organization to be
  filed with Secretary of State
LLC Advantages

 Same as S-corp PLUS
 Not subject to S-corp restrictions on
 Less paperwork than corporation
LLC Disadvantages

 Can be expensive to set up
 Can incur tax obligations if switch from S
  or C corp to LLC
 Limited life span (30 years)
 Must be more like partnership than
  corporation (in operating agreement)