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lecture%208.1%20business%20entities.%20HFT3600 - Lecture...

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Lecture 8.1 – Corporations and Business Entities Business Entities Considerations for choosing organizational structure Ownership Individual owner Working partners Working partners + investing partners Investment capital Owners = private funds Financing by loan institutions Financing by private investors Shares of stock Debt instruments Control Owner(s) Investors Lenders Shareholders Taxes Corporate taxation Investors = taxation Benefits of depreciation, business investment, business write-offs Foreign and offshore choices Liability Protection Owner(s) Investors Lenders Foreign liabilities Insurance Business Entities Look at state laws; the forms of entities, liabilities, taxes vary from state to state. Sole proprietorship Owner runs business Taxed as Owner’s own income Easy to sell or pass to heirs Lenders look solely to credit of Owner/ Proprietor Liability rests on Owner/ Proprietor; personal liability 1
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Insure to limit liability May file for fictitious name to do business under a trade name Allows the Owner to keep financial information of the business private; no disclosure requirements except for payment of taxes. General Partnership Two or more persons owning and operating business together Each partner taxed on proportionate share of business income Each partner is usually liable for whole of debts or liabilities of business. Personal liability, not dependent upon whether that partner was responsible for the particular debt or liability Partnership Agreement; specifies responsibilities of operating business, how each partner’s share may be transferred by sale or passed to heirs; this is common source of problems - should include buy-out provisions. Like sole proprietor, allows financial information to be kept private between
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