Lecture 21 - CVEN 349: Civil Engineering Project Management...

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1 CVEN 349: Civil Engineering Project Management LECTURE # 21 Fall 2009 Dr. Ivan Damnjanovic Legal Organization Very important for contractor since it determines: ± Profit ± Taxation ± Liability ± Operations ± Raising of Capital Proprietorship ± The simplest form of legal structure ± Operations: ± The proprietor makes all decisions ± Profit ± All revenues and expenses are also personal cash flows ± Liability ± The proprietor is fully liable for the decisions of the proprietorship ± Taxation: ± Proprietor is taxed as individual ± Raise of Capital: ± Credit line is limited by the personal assets
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2 Partnership ± Motivation for this legal structure is to division of risk and pooling of management and financial resources ± Similar to proprietorship but involves more than one partner – called general partners ± Ownership is shared among partners – “marriage” Partnership (cont’d) ± Operations: ± Divided among general partners (principals) ± Profit ± Partners share the profit and losses based on their degree of ownership ± Liability ± Liability is also shared based on the degree of ownership, however liability of each partner is not limited. Example CJB Partnership Personal wealth Carol 40% ownership $1,200,000 Joan 30% ownership $800,000 Bob 30% ownership $100,000 Major loss of $1,000,000 - Who will pay for it?
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3 Partnership (cont’d) ± Taxation: ± General partners are taxed individually ± Raise of Capital: ± Credit line is increased since the pool of personal wealth is increased, however it is still limited to the partners wealth ± Some investors are interested in investing, but afraid of liability Limited Partnerships ± Provides a limit to the liability that is carried by some partners – limited partners ± Still need to have at least one general partner with full liability ± These limited partners ± Full profit participation ± No voice in management ± Must have a tangible contribution in partnership Corporation ±
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Lecture 21 - CVEN 349: Civil Engineering Project Management...

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