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Forms of Business Organization : 

Forms of Business Organization

Sole Proprietorships : 

Sole Proprietorships Business owned (and usually operated) by one person Simplest form of business ownership Most popular form of business organization – 72.2% of all Most common in: Retailing Service Agriculture

Sole Proprietorship -- Advantages : 

Sole Proprietorship -- Advantages Ease of Startup Little legal documentation No co-owners to consult Least expensive to start Pride of Ownership Retention of profits Flexibility No Business Income Tax

Sole Proprietorship -- Disadvantages : 

Sole Proprietorship -- Disadvantages Unlimited Liability Limited Life – Business ends when owner leaves the business Limited Access to Start-up Capital Limited Access to Credit Limited Management Expertise Difficulty in Hiring Employees Proprietor not considered an employee

Partnerships : 

Partnerships Two or more owners Least numerous form – 7.7% of all businesses Partnership Agreement Specifies rights and obligations of partners If written, called the Articles of Partnership (Articles of Co-partnership)

Partnership -- Advantages : 

Partnership -- Advantages Greater Access to Capital Greater Access to Credit Retention of Profits More Management Expertise No Business Income Tax

Partnership -- Disadvantages : 

Partnership -- Disadvantages Shared Profits Unlimited Liability for “General Partners” Each partner has “Agency” power Limited Life Business ends when any partner withdraws Management Disagreements Frozen Investment

Types of Partners : 

Types of Partners General Partner Unlimited Liability Assumes Management Role Limited Partner Liability limited to Investment May not take active managerial role Every partnership must have at least one general partner

Types of Partners : 

Types of Partners General Partnership All partners are general partners Limited Partnership One or more limited partners Master Limited Partnership Owned & managed like a corporation Taxed like a partnership Shares may be sold

Corporations : 

Corporations Generally larger than other forms (Except for S-Corporation) 20.1% of all U.S. Businesses Account for 87.1% of all U.S. Business Income Considered a separate legal entity Owners called “Stockholders” or Shareholders” Ownership evidenced by “Stock Certificate” Governed by “Board of Directors”

Corporations -- Advantages : 

Corporations -- Advantages Limited Liability Ease of Ownership Transfer Unlimited Life Greater Access to Capital Specialized Management Expertise

Corporations -- Disadvantages : 

Corporations -- Disadvantages More difficult & costly to form Requires a “Corporate Charter” Subject to greater governmental scrutiny Diluted earnings Double taxation

Corporations vs. Sole Proprietorships : 

Corporations vs. Sole Proprietorships SP Corp Income $1,000,000 $1,000,000 Expenses 500,000 500,000 EBT $500,000 $500,000 (Assume Business Tax Rate = 50%) Business Tax 0 250,000 Net Profit $500,000 $250,000 (Assume a 30% Personal Tax Rate) Personal Tax 150,000 75,000 $ to Owners $350,000 $175,000

Corporate Charter : 

Corporate Charter Legal Permission to Operate as a Corporation Issued by state May not conduct business as a corporation without a charter

Contents of a Corporate Charter : 

Contents of a Corporate Charter Company Name & Address Names & addresses of Incorporators Purpose of the Corporation Maximum amount of stock & Classes of Stock to be issued Rights & Privileges of stockholders Length of time the corporation is to exist

Stockholder Rights : 

Stockholder Rights Common Stock Votes in corporate matters One vote per share owned Preferred Stock No voting rights Dividend claims are paid 1st Dividend Distribution of earnings to the stockholders of a corporation

Organizational Chart : 

Organizational Chart

Created by :- : 

Created by :- Vivek Kadvani