BUS X100 1nd Edition Lecture 4 Outline of Last Lecture Business Forms: Sole Proprietorship and PartnershipsI. Sole ProprietorshipII. PartnershipIII. CorporationIV. Limited Liability CompanyV. Other types of Business Ownershipa. government owned coporationsb. not for profit or nonprofit corporationsc. cooperativesd. joint venturese. syndicatesVI. Sole Proprietorshipa. definitionb. the most popular form of business formationc. usually smalld. treated as an extension of the ownere. advantagesf. disadvantagesVII. Partnershipsa. definitionb. advantagesc. disadvantagesVIII. Types of Partnershipsa. general partnershipb. limited partnershipc. limited liability partnershipd. limited liability partnershipIX. Advantages of PartnershipX. Disadvantages of PartnershipOutline of Current Lecture These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.I. Corporationa. definitionII. Types of Corporationsa. ‘C’ Corportationsb. ‘S’ CorporationsIII. Advantages of Corporationsa. Limited Liability for shareholdersb. ease of rasing capitalc. perpetual lifed. ease of transfer of ownershipe. specialized managementIV. Disadvantages of Corporationsa. difficulty and expense of formationb. government regulationc. lack of secrecyd. double taxationV. Forming a Corporationa. Incorporationb. Articles of Incorporation – Corporate Charterc. Stockholder’s RightsVI. Limited Liability Companya. definitionVII. Types of Limited Liability Companiesa. Single-member LLCsb. Multi-Member LLCsi. Member manages LLCsii. Manager-managed LLCsVIII. Advantages of Limited Liability Companiesa. Limited Liabilityb. Single ‘pass-thru’ taxationc. Simplified AccountingIX. Disadvantages of Limited Liability Companiesa. Cost and formality of formationb. legal uncertaintyc. variations of LLC statutes and tax laws by stateX. Governing Documents Limited Liability Companiesa. Articles of Organizationb. Operating AgreementCurrent LectureI. Corporationa. definitioni. a legal entity with the authority to act and have liability separate from its ownersb. largest $ form of ownership in the USc. The State charter & regulate corporationd. Shares of corporate ownership are called stockII. Types of Corporationsa. ‘C’ Corportationsi. conventional or ‘C’ Corpii. results in double taxation1. pays corporate income taxes2. pays dividends to share holders who may also be taxed on those dividendsb. ‘S’ Corporationsi. a tax elective for a conventional corporation that may be taxed once as a pass through to each of the shareholdersii. a corporation may apply to IRS for ‘S’ tax status if vertain criteria are metIII. Advantages of Corporationsa. Limited Liability for shareholdersi. corporation us a legal being separate from its ownersii. owner’s financial liability limited to investments in the corporations’ stockb. ease of raising capitali. can borrow debt from lending institutions like other forms of ownershipc. perpetual lifei. a legal being that exists separate from its ownersd. ease of transfer of ownershipi. stick shares may be privatelt or publicly tradede. specialized managementi. ability to recruit and retainIV. Disadvantages of Corporationsa. difficulty and expense of formationi. use of attorney usually necessaryii. fees for attorneys, charters, registrations, and organization can be significantb. government regulationi. restricted to activities spelled out in chapterii. report filings on operations and financesiii. SEC filings if publicly traded companyc. lack of secrecy i. you can t cover your business, you must have full disclosure and transparencyd. double taxationi. ‘C’ corp taxed on corporate income at corporation tax ratesii. ‘C’ corp dividends paid may be taxed to the shareholder at the shareholders’ tax ratesV. Forming a Corporationa. Incorporationi. the process of forming a corporationb. Articles of Incorporation – Corporate Charteri. ‘contract’ between the Corporation and the Statec. Stockholder’s Rightsi. Common Stock, preferred stock, dividends, proxyVI. Limited Liability Companya. definitioni. LLC’s are unincorporated legal entities created under state law – providingthe benefits of both liability protection and single pass-thru taxationVII. Types of Limited Liability Companiesa. Single-member LLCsi. recognize on most states, including Indianaii. pass through taxation – same as sole propietorb. Multi-Member LLCsi. recognized in all statesii. limited liability for all LLC members1. Member manages LLCsa. LLC statute and operating agreement determine voting rightsb. any member has authority to legally bind the LLC in the ordinary course of business2. Manager-managed LLCsa. non-manager LLC members have very limited managementrights similar to stockholdersVIII. Advantages of Limited Liability Companiesa. Limited Liabilityi. no LLC member is personally liable for the debts of the LLCb. Single ‘pass-thru’ taxationi. partnership taxation rules generally apply to LLCs and its membersc. Simplified Accountingi. LLCs can generally use the cash methods of accountingIX. Disadvantages of Limited Liability Companiesa. Cost and formality of formationi. require filing ‘articles of organization’ with the home stateii. may also require registration as a foreign LLC to ‘qualify to do business in other statesb. legal uncertaintyi. LLCs have a very short legal track record – and there is essentially no LLC case lawc. variations of LLC statutes and tax laws by statei. in some states, LLCs are subject to entity level state income taces (not so for partnerships)ii. some states do not permit LLCs for certain lines of business such as banking, insurance and farmingX. Governing Documents Limited Liability Companiesa. Articles of Organizationi. filled with secretary of state to form LLCii. similar to the articles of incorporation of corporationb. Operating Agreementi. separate contractual arrangement among the members – may be called ‘regulations’ or ‘limited liability company agreements’ii. similar to a partnership