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Unformatted text preview: CORPORATION S OUTLINE 1) INTRODUCTION a) Choice of business form i) Types of modern business conduct (1) Sole proprietorships, parent ships, corporation s, limited partnerships, LLC, LLP, limited liability limited partnerships ii) Considerations when choosing form (1) Liability (a) Some forms offer equity protection against personal assets being taken to satisfy business liability (i) Limited liability – only business’s assets may be used to satisfy claims 1. In practice, shareholders rarely enjoy complete protection of LL a. Financial creditors typically ask major shareholders to personally guarantee corporate debt before extending credit i. Therefore unlimited liability b. Corporation s are liable for torts of employees committed in the course of employment i. Individual tortfeasors are liable too so if a shareholder provides the labor and commit the tort, they are personally liable (2) Taxation (a) Double Taxation (i) Some forms of business are taxed as independent entities 1. After tax on the entity the income is distributed to owners and is taxed again as income to investors 2. However, in 2003, tax code eliminated tax on corporate dividends – double taxation is not longer a problem (b) Non taxable business forms have problems too (i) If they operate at a profit, the profit is taxed even if not distributed to shareholders 1. In a taxable corporation , the profit is not taxed if kept in the company (3) Administration – How hard is it to establish and maintain (4) Centralized v. Decentralized management b) Forms of Doing Business i) Sole Proprietorships (1) Simplest form; business = proprietor, individual goes into business as an individual (2) Can have many employees but only one owner (3) No formality required to establish (a) Many jurisdictions require a general business license (4) Liability (a) Absolute liability (b) Sole proprietor is liable for all obligations and gets all profits (5) Taxation (a) Income from business is taxed as income (b) No double taxations 1 (6) Duration of Sole Proprietorships (a) Owners proprietorship ends (i) When sold, debts are gone and do not carry over to new owner (ii) Old proprietor remains liable for debts accrued over the life of proprietorship ii) Partnerships (1) Partnership act §6 definition (a) 2 or more persons who are co-owners of a business for profit (i) the 2 people can be individuals, other corporation s, businesses (2) No formality needed to establish (a) Oral or a written agreement or through conduct (3) Liability (a) Partners are personally, jointly and severally liable for obligations of the partnership (i) Revised Uniform Partnership act requires exhaustion of all partnership assets first (4) Taxation (a) May choose firm-taxation (b) flow through taxation (i) Firm’s income or losses are not attributed to the firm but instead flow through to the firm’s owners (5) Duration (a) Partnership changes when people come in and leave (i) Every time someone new comes in, old partnership ends and new one...
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- Fall '07