2 Corporate Structure Governance

2 Corporate Structure Governance - Click to edit Master...

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Click to edit Master subtitle style Copyright © 2007 The Corporation Firm structure
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Copyright © 2007 Firm Structure A business firm or entity can be structured legally in several different ways, one of which is a corporation. l Firm Characteristics Ownership and Control Life Legal Liability Taxation of earnings l The name of the same legal entity form varies from country to country. 22
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Copyright © 2007 Sole Proprietorships A business owned and run by one person. In theory, the firm life ends with the owner’s death. In practice, heirs can continue the business. The owner has unlimited personal liability. Firm earnings flow through (or pass through) to owner who pays income tax on the firm earnings. No separate tax on firm earnings. Most businesses are sole proprietorships but they account for a very small portion of business sales – around 5%. 33
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Copyright © 2007 Partnerships Like a sole proprietorship, but with multiple owners who jointly run the business. l The partners in a traditional general partnership have unlimited personal liability. The partner’s personal liability increases the confidence of the firm’s clients that the partners will work to maintain the firm’s reputation. l Firm earnings flow through to partners who pay income tax. l Service provider firms (Accounting, Law, Doctors) are often organized as partnerships. 44
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Copyright © 2007 Firm Structures Limited Liability Partnership (LLP) Common modern form of partnership has partners with limited liability, to the extent of their investment. In some countries, law may require general partners who have unlimited liability. l Limited Liability Company (LLC) Not “Limited Liability Corporation” Has some corporate and some partnership characteristics. May have one or more owners . Owners have limited liability. 55
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Copyright © 2007 Corporations (Inc., Corp.) A legal entity with a truly separate personality from its owners (shareholders or stockholders). l Unlimited life , unless bankrupt or liquidated. l The owners of a corporation have limited liability and are not liable for its obligations. l Firm earnings do not flow through to stockholders but are taxed at the corporate firm level and dividends (distributions of earnings) are then taxed at the stockholder level. “Double Taxation” 66
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Copyright © 2007 Corporations Corporations must be legally formed according to the laws of the state where it is incorporated. l The corporate charter specifies the rules by which the corporation is run. l The entire ownership stake of a corporation is divided into shares known as stock. The collection of all the outstanding shares of a corporation is known as its capital stock. Common stock is ordinary stock.
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This note was uploaded on 04/04/2011 for the course MBA 648 taught by Professor Jake during the Spring '11 term at Pace.

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2 Corporate Structure Governance - Click to edit Master...

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