01 Introduction

01 Introduction - Companies: Legal Forms and Structures...

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Companies: Legal Forms and Structures Professor Arnold Lecture developed by Professors Mahon, Kohn, and Arnold
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Structure Legal So what? Choices Pros and cons Influencing factors Organizational So what? Choices Pros and cons Influencing factors Determines Determines what firms what firms MUST do. MUST do. Contributes to Contributes to firms’ firms’ ABILITY to do. ABILITY to do. The ability to execute procedures and implement strategies is influenced by the way a company is structured.
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Legal Structure - so what? Forming and (maybe) closing the business Selling the business Controlling the business Assuming risk Getting money: Into the business (raising debt and/or equity) Out of the business (receiving dividends) Paying taxes Disclosing information Subjecting to regulation
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SOLE PROPRIETORSHIP SOLE PROPRIETORSHIP PARTNERSHIP PARTNERSHIP CORPORATION CORPORATION CORPORATION Income Earned $100 Corporate Taxes (30%) $ 30 Net (corporate) Income $ 70 Dividends paid $ 70 Personal Taxes (30%) $ 21 Net (personal) Income $ 49 SOLE PROPRIETORSHIP Income Earned $100 Personal Taxes (30%) $ 30 Net (personal) Income $ 70 PARTNERSHIP Income Earned $100 Personal Taxes (30%) $ 30 Net (personal) Income $ 70 Legal Structure - Choices, Pros and Cons Liability Individual Partners Corporate Protection Pay Taxes Individual Partners Double Taxation Bureau- cracy Minimal Paperwork Extensive Paperwork Govern- ance Owner Controlled Partner Controlled Shareholders Board of Directors Management (CEO) SOLE PROPIETORSHIP PARTNERSHIP CORPORATION Disclose Informa- tion Very Little Very Much Raise Money Very Difficult Not So Difficult Distribute Returns Get Money When Needed Distribute Profits to Partners Pay Dividends to Shareholders Goals, strategies, risk preferences, and tax laws influence the choice.
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Taxing Issues Aviophobia and Associates (exercise for Wednesday) A couple are setting up a new business and must decide whether to set the business up as a proprietorship/partnership or as a corporation. The focus of the decision making concerns tax liability differences between the two
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This note was uploaded on 04/01/2009 for the course SMG SM 121 taught by Professor Arnold during the Spring '09 term at BU.

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01 Introduction - Companies: Legal Forms and Structures...

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