Study Questions 1-4

October 7, 2015Uncategorizedak147747

1. The factors in deciding what form of ownership is best suited to the business are
   1. potential size of business
   2. control needed by decision makers
   3. capital needed to start business
   4. tax considerations
   5. liability concerns
   6. business continuation planning
   7. beneficiary designation
   8. time available to deal with setting up a corporation
2. Advantages of sole proprietorship:
   1. Ease of setting up
   2. low cost
   3. all decisions under your control
   4. all profit is yours
      1. Disadvantages of a sole propretership:
         1. Personal liability is unlimited
         2. business limited to skills of single owner
         3. limited access to capital through banks
         4. lack of business continuation planning in case you kick the bucket
   5. Advantages of a partnership
      1. easy and cheap to establish
      2. skills of partners complement one another
      3. profits can be divided how partners best see fit
      4. more access to and larger pool of capital
      5. flexibility
      6. tax advantages
         1. Disadvantages of partnership
            1. Unlimited liability of at least one partner
            2. less effective at accumulating capital than corporation
            3. difficulty in dissolving partnership
            4. potential for conflict
3. A corporate form of ownership creates a corporation that is a separate legal entity, a “person” in the eyes of the law. This does two main things. First, it allows ownership of the corporation to be divided into shares. Thus someone who invests more capital into the business by buying shares, has more ownership of the company and can be more involved in making decisions. Second, the corporation acts as a liability shield. The corporate veil protects the owners of the corporation from personal liability. The corporation may be sued out of existence, but most likely its owners personal assets will be untouched.
4. Differences between S-corp and LLC
   1. S-corp can have a max of 100 owners, LLCs do not have this restriction
   2. S-corps cannot have non US residents/citizens as owners
   3. S-corps may not be owned by many other types of corporations, LLCs, or trusts
   4. S-corps require issuing stock, holding meetings, passing bylaws, keeping minutes, etc, LLCs are not
   5. S-corps are easier to transfer ownership in than LLC
   6. S-corps have preferable tax treatment to LLCs
   7. S-corps takes longer to type than LLC.