MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

What factors should be considered before deciding on a form of ownership?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Tax considerations2. Liability exposure3. Start-up and future capital requirements4. Control5. Managerial ability6. Business goals7. Management succession plans8. Cost of formation

Factors to Consider when choosing a Form of Ownership:

What are the major Forms of Ownership?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Major Forms of Ownership:

1. Sole Proprietorship2. General Partnership3. Limited Partnership (LP)4. Limited Liability Partnership (LLP)5. Corporation6. S Corporation7. Professional Corporation (PC)8. Limited Liability Company (LLC)9. Joint Venture (JV)

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

What are the advantages of a Sole Proprietorship?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Advantages of the Sole Proprietorship:

1. Simple to create

2. Least costly form to begin

3. Profit incentive

4. Total decision making authority

5. No special legal restrictions

6. Easy to discontinue

What are the dis-advantages of a Sole Proprietorship?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Disadvantages of the Sole Proprietorship:

1. Unlimited personal liability

2. Limited skills and capabilities

3. Feelings of isolation

4. Limited access to capital

5. Lack of continuity of the business

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Define Partnership…

Sole Proprietorship

Claims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s Creditors

Sole Proprietor’s Personal Assets

Sole Proprietor’s Personal Assets

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. An association of two or more people who co-own a business for the purpose of making a profit.

2. Always wise to create a partnership agreement.

3. The best partnerships are built on trust and respect.

Partnership Form of Ownership:

What are the Advantages of a Partnership?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Easy to establish

2. Complementary skills of partners

3. Division of profits

4. Larger pool of capital

5. Ability to attract limited partners

Advantages of Partnership Organization:

What are the Disadvantages of a Partnership?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Unlimited liability of at least one partner2. Capital accumulation3. Difficulty in disposing of partnership interest

without dissolving the partnership4. Potential for personality and authority conflicts5. Partners bound by law of agency

Dis-Advantages of Partnership Organization:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

General Partnership Form of Ownership

Claims of Partnership’s Creditors

Claims of Partnership’s Creditors

Partnership’s AssetsPartnership’s AssetsGeneralPartner’sPersonalAssets

GeneralPartner’sPersonalAssets

GeneralPartner’sPersonalAssets

GeneralPartner’sPersonalAssets

What is a Limited Partnership?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

A partnership composed of at least one general partner and one or more limited partners.

A general partner in this partnership is treated exactly as in a general partnership.

A limited partner has limited liability and is treated as an

investor in the business.

Limited Partnership Form of Ownership:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Claims of Partnership’s Creditors

Claims of Partnership’s Creditors

Partnership’s AssetsPartnership’s AssetsGeneralPartner’sPersonalAssets

GeneralPartner’sPersonalAssets

LimitedPartner’sPersonalAssets

LimitedPartner’sPersonalAssets

BARRIER

Limited Partnership Form of Ownership:

What is an LLP?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Limited Liability Partnerships Form of Ownership

1. All partners in the business are limited partners.2. Gives the advantage of limited liability for the debts of

the partnership.3. Does not pay taxes – income is passed through to the

limited partners who pay taxes on their share of the company’s income.

4. Limited to certain professions… attorney, cpas, etc.

Define Corporation.

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. A separate legal entity from its owners.

2. Unlimited Life

3. Taxable

What Types of Corporations are there?

Corporation Form of Ownership

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Types of corporations:1. Domestic – a corporation doing business in the

state in which it is incorporated.2. Foreign – a corporation doing business in a state

other than the state in which it is incorporated. 3. Alien – a corporation formed in another country

but doing business in the United States.

Corporation Form of Ownership

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Corporation Form of OwnershipTypes of corporations:1. Publicly held – a corporation that has a large

number of shareholders and whose stock usually is traded on one of the large stock exchanges.

2. Closely held – a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.

What are the advantages of a corporation?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Limited liability of stockholders2. Ability to attract capital3. Ability to continue indefinitely4. Transferable ownership

Advantages of Corporation:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Corporation

Claims of Corporation’s CreditorsClaims of Corporation’s Creditors

Corporation’s AssetsCorporation’s Assets

Shareholder’sPersonal AssetsShareholder’s

Personal AssetsShareholder’s

Personal AssetsShareholder’s

Personal Assets

barrier barrier barrier barrier

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

PartnershipClaims of Partnership’s CreditorsClaims of Partnership’s Creditors

Partnership’s AssetsPartnership’s Assets

CorporateGeneralPartnerAssets

CorporateGeneralPartnerAssets Limited

Partner’sPersonalAssets

LimitedPartner’sPersonalAssets

BARRIER

BARRIER

Corporate ShareholdersCorporate

ShareholdersWhat are Disadvantages of Coropration?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Cost and time of incorporation process2. Double taxation3. Potential for diminished managerial incentives4. Legal requirements and regulatory “red tape”5. Potential loss of control by founder(s)

Dis-Advantages of Corporation:

What informaiton goes into the Articles of Incorporation?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Name2. Purpose3. Life Span… or unending4. Incorporator(s) Information5. Place of Business6. Shares Authorized7. Capital Required8. Preemptive Rights – Anti-dilutive Provisions9. Shareholder Restrictions10. Officer(s) Information11. Rules - Bylaws

Articles of Incorporation/Charter:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

What is an S Corporation?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

S Corporation1. No different from any other corporation from a legal

perspective.

2. An S corporation is taxed like a partnership, passing all of its profits (or losses) through to individual shareholders.

3. To elect “S” status, all shareholders must consent, and the corporation must file with the IRS within the first 75 days of its tax year.

What are the Advantages of an S Corp?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

What are the Dis-Advantages of an S Corp?

S Corporation Advantages:

Retains all of the advantages of regular corporation:

1. Continuity of existence

2. Transferability of ownership

3. Limited personal liability for owners

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Entrepreneurs considering both S and C status should review the impact of the decision on their companies.

2. S corporation status is usually beneficial to start-up companies anticipating net losses because founders can use the loss to offset other income, and lower their tax bill.

S Corporation Dis-Advantages:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

S Corporation

Claims of S Corporation’s CreditorsClaims of S Corporation’s Creditors

S Corporation’s AssetsS Corporation’s Assets

Shareholder’sPersonal AssetsShareholder’s

Personal AssetsShareholder’s

Personal AssetsShareholder’s

Personal Assets

barrier barrier barrier barrier

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Resembles an S Corporation but is not subject to the same restrictions.

Two documents required:

1. Articles of organization

2. Operating agreement

Limited Liability Company (LLC):

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Limited Liability Company

Claims of LLC’s CreditorsClaims of LLC’s Creditors

LLC’s AssetsLLC’s Assets

Member’sPersonal Assets

Member’sPersonal Assets

Member’sPersonal Assets

Member’sPersonal Assets

barrier barrier barrier barrier

What is a Professional Corporation?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Designed for professions – lawyers, doctors, dentists, accountants and other professionals

Created in the same manner as a corporation Identified by the abbreviations:

► P.C. – Professional Corporation► P.A. – Professional Association► S.C. – Service Corporation

Professional Corporation:

What Limitation must a PC comply with?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Professional Corporation Limitations:

1. Shares Owned By Licensed Professionals.2. At least One Incorporator must be Licensed.3. At least One Directory must be Licensed.4. Articles must designate Personal Services to be

provided.5. Licensing Board Certifies that All Shares are held by

Duly Licensed Individuals.

What is a Joint Venture?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Much like a partnership, but it:

1. Is formed for a specific purpose

2. Has a beginning and an end

Joint Venture:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

Is there a Form of Ownership that is better than the others?

Is there a Form of Ownership that is worse that the others?

Is there a Form of Ownership that is evil?

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

1. Tax considerations2. Liability exposure3. Start-up and future capital requirements4. Control5. Managerial ability6. Business goals7. Management succession plans8. Cost of formation

Factors to Consider when choosing a Form of Ownership:

MANA 3325 – ThurburnLecture 09-12-13 Slides Forms of Business Ownership

What would be the best form of ownership for…

1. A Local Restaurant?

2. A Food Truck Business?

3. A Lawn Care Business?

4. A Chiropractor?

5. A Software Company?

6. A Consulting/Coaching Business?