FINAL REVIEW Forms of Doing Business a Formation All require money to start up b Taxation c Liability Most important when we get sued if we get sued we put in peril all of the things that we have accumulated over our life time Money car house In certain types of companies this can be avoided d Transferability of Interest i Over 50 of small businesses fail after 4 years of operation e Sole Proprietorship company i Formation One owner no formalities as to what privileges you get within the ii Taxation Every dollar that you make or loose goose directly passes through to your personal tax return called a 10 40 return iii Liability If someone sues you your personal property is liable to compensate for iv Transferability of Interest You can sell the assets and good will not much else to the injured persons losses give because they are the owner f Partnership Not a separate corporate entity i Formation Similar to the Sole Proprietorship except with at least 2 people can be as many people as you would like If something where to happen with one of your partners and there was no more formalities with the partnership agreements there could be an issue with your partners spending money in ways you would not want to 1 Law of Agency Drawback to Partnership If we started a partnership with the entire class and did not define an executive committee everyone in the room would be agents and principals for the company a Ex Agent signed a contract for Craig Fergusson to do the Pow Wow Each of our classmates has the legal rights to make any decision that they would like g Limited Partnership not a separate corporate entity i Formation Creature of statute need at least one general partner and at least one limited partner Meant for people to shelter themselves from a business that they are currently associated with Usually wealthier people will do this in order to h Corporation protect their assets not associated with the current business endeavor they can only loose what they put into the company Informational return used for the IRS to double check your accounting ii iii On paper Limited partnerships usually have a lot of paper losses due to the amount of money they are putting into the company iv Liability General partners have liability whereas limited partners only have the amount of liability that they put into the company and no more i Formation Usually formed in order to avoid corporate liability Creating a corporation is forming a completely separate legal entity literally like a separate person Can now form with just one person Delaware is really lenient on this 1 Has to indicate in its name that the company is a corporation or not Inc 2 Cannot forget that both the company and the person ARE separate you should not co mingle funds between your company and your personal accounts 3 There are some formalities that you MUST follow such as having recorded meeting minutes 4 Piercing the corporate veil Causing an owner to lose the protection of the corporation an being able to hold them liable personally for damages that they might have caused even if working as the corporation ii Taxation One of the drawbacks of a large corporation without doing anything differently will have to be double taxed If the company makes money and pays some out to one of the owners it gets taxed once the owner receives it they are taxed for their personal income as well iii Transferability of Ownership Easy to give away ownership in corporations stocks Just as easy to do with a big company as a small company besides the fact that places like the stock market advertise bigger company s stocks for them 1 Amendment of Internal Revenue Code led to the creation of S corps i Subchapter S corporation i Similar to the C corporation however does not face double taxation Shows the money that was made in the company and where it was sent out to the shareholders eliminates double taxation 1 Some of the catches As long as you have 75 or less shareholders and everyone agrees who is a shareholder 2 Again only treated differently with regards to IRS tax purposes j Limited Liability Company LLC 2 types of LLC 1 Member Managed Just like the example from the classmates start up Everyone that is in the partnership has voting rights and decision making power 2 Manager Managed All the members would decide that a certain number of members in the group would be the executives of the company Or they could decide to bring in someone else to manage the company main fact is there are leaders versus completely group oriented a When 3rd parties come and talk to your company they will seek out the managers Vice versa if there is an issue with something the law would seek out the managers ii Formation Not a corporation no shares of stock If you own interest in an LCC you are a member not a partner director or shareholder in the company iii Taxes Similar to the S corporation money passes through the company to the iv Liability Can only loose what you put into the company v Transferability Not usually big companies Usually harder to do since there is no owners stock Owners select directors directors will usually select management and decisions
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