ENTREPRENEURSHIP STUDY GUIDE Test 2.doc

ENTREPRENEURSHIP STUDY GUIDE Test 2.doc - Legal Forms of...

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Legal Forms of Business Organization -Sole Proprietorship -Partnership -Corporation -Limited Liability Company (LLC) Variation of Basic Organizational Alternatives -Sole Proprietorship -General Partnership (GP or LP) -Limited Liability Partnership (LLP) -C Corporation -S Corporation -Limited Liability Company (LLC) Considerations in Choosing a Legal Form -Ownership -Liability of Owners -Management Control -Distribution of Profits (Tax Consequences) -Costs of Starting the Business -Continuity of the Business -Transferability of Interest -Attractiveness for Raising Capital Sole Proprietorship Ownership-Individual Liability of Owners-Individual Liable for Debts of the Business Management Control-Owner (Individual) Makes All Decisions
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Distribution of Profits-Flow Through to Personal Return of Owner Costs of Starting the Business-Low (Mainly Filing Fees) Continuity of the Business-Easy to Exit. Death Dissolves Business Transferability of Interest-Unrestricted Attractiveness for Raising Capital-Typically Poor. Limited. In a sole proprietorship there is no legal distinction between the business and the owner. The owner will register the business with a “doing business as” name to use a name rather than the proprietor’s legal name General Partnership Ownership-No Limit on Number of Partners Liability of Owners-All Partners Liable for All Debts Management Control-All Partners Have Equal Control Unless Otherwise Specified in the Partnership Agreement Distribution of Profits-Flow Through to Personal Returns of the Partners Typically Based on the Partnership Agreement Costs of Starting the Business-Legal Costs for Partnership Agreement, and Filing Fees Continuity of the Business-Typically Governed by Partnership Agreement. Otherwise Death Dissolves the Business. Transferability of Interest-Requires Consent of Other Partners Attractiveness for Raising Capital-Typically Poor. Limited but Better Than Proprietorship. Limited Partners (often just passive investors) are Liable Only Up to Amount Invested. In a General Partnership Limited Partners Cannot Have any Management Responsibilities but Limited Partners Can Sell Interest Without Consent. In a Limited Liability Partnership , Limited Partners Can Have Management Responsibilities Often as Specified in the Partnership Agreement “C” Corporation Ownership-No Limitation on the Number of Owners*
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Liability of Owners-Up to the Amount of Capital Contribution Only Management Control-Day-to-Day Control With Management. Majority Shareholders Have Control from Legal POV Distribution of Profits-Dividends (The Double Taxation Problem)** Costs of Starting the Business Legal Fees for Incorporation, Filing Fees, Taxes Continuity of the Business-Indefinite Transferability of Interest-Unrestricted*** Attractiveness for Raising Capital-More Attractive as an Investment *In an “S” Corporation, Limited to Single Class of Stock and 100 Shareholders ** “S” Corporations Are taxed Liked Partnerships. Flow Through to the Owners Personal
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ENTREPRENEURSHIP STUDY GUIDE Test 2.doc - Legal Forms of...

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