Chapter 2 Business Planning and Organization

1
Chapter 2 Business Planning and Organization

• BCN 4708 Fall 2008

2
Business Types

• Sole Proprietorship
• Partnership
• General Vs Limited
• Joint Ventures
• Corporation
• S-Corporation aka Subchapter S

3
Sole Proprietorship

• Simplest form of Business organization
• Owner is manager and makes all decisions
• Compliance with state and local business
  licensing requirements only
• Advantages easy to create, total control by
  owner, transferable, and liquidity
• Disadvantages personal liability, death of
  owner, must use property to secure loans, taxes
  and benefits not tax deductible.

4
Partnership

• Two or more persons in an agreement
• Co-owners
• liability
• Partnership agreement (like a Business Plan)
• General Partnership
• Pooled resources
• Limited Partnership
• At least one general partner and one or more
  limited partners
• Limited partner Capital for Return on capital
• Limited say limited liability

5
Partnership

• Advantages increased ability to raise capital,
  pooling of resources, pooling of talents, shared
  responsibility and minimal administration costs.
• Disadvantages General partners have unlimited
  liability, termination upon death, bankruptcy or
  withdrawal, non-transferable, benefits not
  tax-deductible

6
Joint Ventures

• Special combination of two or more persons or
  entities.
• Specific Venture
• No designation as a partnership or corporation
• Same rules as partnership
• Usually limited to single transactions

7
Corporation

• Creations of statutes
• Separate legal entity under the laws of state
• Same rights as individuals have
• Most costly to form
• Issues Stock
• ESOP

8
Corporation

• Advantages Exemption of liability, continuity of
  existence, death has no effect, high level of
  management, transferable ownership, fringe
  benefits are tax deductible, and able to raise
  capital.
• Disadvantages Lack of centralized control,
  closely regulated, expensive, record keeping, and
  double taxation.

9
S-Corporation

• Shareholders absorb all corp. income or losses
  report as individual taxpayers.
• Eliminates the problem of double taxation.
• IRS regulations
• Has most of the same advantages and disadvantages.

10
S-Corporation

• Must be domestic
• One class of stock
• Only individuals and estates can be shareholders
• Cannot be part of another organization
• Max number of shareholders
• No non-resident alien shareholders
• 20 of revenue must be from domestic sources
• Dividends, interest, royalties, rents, annuities,
  and securities transactions lt 20 of total
  revenue

11
LLC

• Owners will be the same from the beginning to the
  end. 
• There is no stock in an LLC. 
• The ownership is represented by 100 membership
  interest. 
• Typically used when you have investment in real
  estate or a rental property,
• The tenants should have no doubt that the owner
  is not you, it is a company. 
• An LLC is treated like a corporation for tax
  purposes. 
• It can have the same flow through attribute an S
  corporation is allowed. 
• It can also have a closed status, like a C
  corporation. 
• There is no record keeping requirements with an
  LLC. 
• There is no board of directors. 
• No requirement to hold board of directors or
  shareholders meetings. 
• Therefore there are no corporate minutes. 

12
Control of Business

• Sole Proprietorship absolute power over all
  decisions.
• Partnership Control is shared between partners
  as per the agreement
• Corporation- depends on stock ownership,
  exercised through regular board meetings by the
  board of directors