Sole Proprietorship Advantages

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					         Chapter 9

Choosing a Legal Structure
 The Selection of a Legal Structure
  and the Agribusiness Manager

 Can have long-term financial
 implications for the owners, their heirs,
 and the existence of the the business

 Need the help of an experienced tax
 attorney and tax accountant, and the
 business owners
        The Three Primary Types
           of Legal Structure

   Sole Proprietorship

   Partnership

   Corporation
The Sole Proprietorship

 An individual who owns, manages, and
 assumes all the risk and derives all the profits
 from a business
    Advantages and Disadvantages
       of a Sole Proprietorship

   Advantages
       Easiest to create
       Oldest and most popular business legal structure
       All profits go to owner
       Owner makes all decisions

   Disadvantages
       All losses charged against owner
       Personal and business assets available
       Business ends with death of owner
                  The Partnership
   Voluntary association of two or more people
    to carry on as co-owners of a business for

   The general characteristics of a partnership
       Each person involved participates in management
       Assets are jointly owned
       Profits/losses are shared
       The parties operate under the firm’s name
       The parties have a joint bank account for their
       The parties keep a single set of business records
            The Importance of a
      Written Partnership Agreement

   How much control does each partner have in
    business decisions?

   How much control does each partner have over real
    and personal property used by the partnership?

   How are profits and losses to be distributed among
    the partners?

   How is the partnership going to keep records?
     Three Types of Partnerships

1.   General partnership

2.   Limited partnership

3.   Registered limited liability partnerships
         The Corporation

A legal entity that is separate and
distinct from the shareholders who own
it, from the individuals who manage it,
and from its employees

Created by state law and organized to
carry on a business for profit or non-
Types of Corporations

1.   Business corporation
2.   Non-profit corporation
3.   Close (or closely held) corporation
4.   Professional corporations
5.   Cooperatives
Advantages and Disadvantages of
the Corporate Structure
   Advantages
       Liability limited to assets of the firm
       Same legal rights as an individual
       Can operate in perpetuity
       Lower tax rates generally
       Tax-deductible employee benefits
   Disadvantages
       More difficult to create than a partnership or sole
       More difficult to dissolve
       More reporting of activities required
 Comparing the Three Structures

 Resource    acquisition
 Continuity of existence
 Liability of the owners
 Participation in management
 Compensation of management
 Transferability of ownership
 Record keeping
 Tax planning
Discussion Questions
1.   Explain why the selection of a legal structure is an
     important decision for an agribusiness and its
     owners. Identify and describe at least four factors
     that need to be considered when making this
2.   Develop a chart that defines sole proprietorship
     and lists the advantages and disadvantages of this
     legal structure.
3.   Develop a chart that defines the three types of
     partnerships and gives the advantages and
     disadvantages of each one.
Discussion Questions
4.   Develop a chart that defines the five types of
     corporate legal structures and gives the
     advantages and disadvantages of each one.
5.   Evaluate the statement that family partnerships are
     the best way to involve a family in a business.
6.   What is a limited liability company and how does it
     differ from a registered limited liability partnership?
7.   Compare and contrast what happens to a business
     when the owner dies if the business is organized as
     a sole proprietor, a partnership, or a corporation.
Discussion Questions
8.    Explain the difference between a general partner
      and a limited partner. Give an example of why
      someone would wish to be each one.
9.    What is the relationship between the Uniform
      Partnership Act and the written partnership
      agreement? Does the partnership agreement have
      to be in writing? Explain your answer.
10.   Some argue that the corporate legal structure that
      gives most corporate executives protection from
      personal liability for acts of their corporation gives
      the them too much immunity from responsibility for
      their acts. How do you feel about this and why?

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