Chapter 4: Choosing a Form of Business Ownership Flashcards

Chapter 4: Choosing a Form of Business Ownership Flashcards

• types of partnership1. Limited2. General

Limited Partnera person who invests money in the business and has no management responsibility Ease of start up and administration for Sole ProprietorsSimplest and least expensive to form. Register business name and obtain business license Ease of start up and administration for CorporationsModerately difficult to form, register business name, obtain business license and must file articles of incorporation with secretary of state along with annual shareholders meeting Limited Liability Company-provides limited liability of a corporation and taxation like a partnership but places few restrictions on members-blends best characteristics of other business ownerships Two basic methods for tax treatment of products 1. Pass-through taxation2. Corporate taxation General Partnerperson who assumes full or shared responsibility for operating the business Corporations-a form of business that is a separate legal entity with most of the legal rights of a real person-exists only on paper Pass-through taxationwhen an owners share of business profits is reported on his or her individual tax return-sole proprietorship's, partnerships and LLCs all use it Sole proprietorship-business that is owned by one person-most common form of business- simplest form of business and easiest to start Private corporation-owned by 1 or few people-no public sales of stock-do not have to disclose financial information to public

• Differences between LLCs and S- Corporations 1. LLCs have unlimited membership and S-Corps can have

no more then 100 people2. S-Corp is only within the US where LLC is global3. S-Corp has freely transferable stock

• Kinds of Legal and Financial Liability 1. Unlimited2. Limited

Ease of start up and administration for partnershipsEasy to form, register business name and obtain license and should create a written agreement between partners What forms of business ownership require shared control of the business because there are usually multiple owners?Partnerships, LLCs, and corporations Ease of start up and administration for LLCs Moderately difficult to form, but no ongoing administration requirements. Register business name, and obtain business license, submit article of organization to secretary of state Unlimited Liabilitysole proprietors and partnerships What form of business ownership is the best choice of businesses intending to attract investment capital by selling shares of their ownership because of their easy transfer of ownership?Corporations

Corporations division of profitsprofits shared according to each owners precentage of ownership Sole Proprietorship Division of profits100% of profits to the owner Partnership- a form of business owned by two or more people who designate the duties and share of profits for each partner- not legal maximum on the number of partners a business can have

• Types of corporations1. Private2. Initial public offering (IPO)3. Public
• Key Considerations of when choosing ownership

structure

• Business control and transfer of ownership2. Taxation

and Division of profits3. Legal and Financial Liability4. Ease of start up and Administration Corporate TaxationWhen the profits for a company are taxed on the entity level before profits are distributed to owners. Then remaining profits are distributed each individual has to pay taxes again on their individual dividends Initial public offering (IPO) Corporation selling a corporations stock on public markers Partnership and LLCs division of profits profits shared equally or profits shared in proportion that is specified in company agreements Public Corporationwhole stock anyone may buy sell or trade What form of business ownership offers the most control, but makes transfer of ownership very difficult?Sole Proprietorships S-Corporation-taxed as a partnership- eliminates double taxation and retains the limited liability benefits- popular among entrepreneurs

• Common Forms of Business Ownership1. Sole Proprietorship's2. Partnerships3. Corporations4.

Limited Liability Companies (LLCs)

• Types of stock1. Preferred2. common

Limited LiabilityCorporations and LLCs