1. What are the factors in deciding what form of ownership is best suited for the potential business?

When you start a business, you must decide whether it will be a sole proprietorship, partnership, corporation, or limited liability company (LLC). Which of these forms is right for your business depends on the type of business you run, how many owners it has, and its financial situation. No one choice suits every business: Business owners have to pick the structure that best meets their needs. Here are some of the most important factors to consider when starting a business:

• The potential risks and liabilities of your business
• The formalities and expenses involved in establishing and maintaining the various business structures
• Your income tax situation, and
• Your investment needs

2. Briefly describe the advantages and disadvantages of a sole proprietorship and partnership.

 Advantages of sole proprietorship:

1. Profit incentive – after all the debt are paid, the owner receives
2. Total decision-making authority – the owner is in total control, thus he/she can respond quickly to changes, which is an asset in rapidly shifting markets
3. No special legal restrictions – it’s the least regulated form of business ownership
4. Easy to discontinue – if the owner no longer wishes to continue his/her business it can be terminated whenever.

Disadvantages of sole proprietorship:

1. Unlimited personal liability – the owner is personally liable for all business debts
2. Limited skills and capabilities of the sole owner – the owner might not know much of how to run a business and lack skills, education, work experience, and training
3. Limited access to capital – sole proprietorships often find it difficult to raise capital unless they have great personal wealth
4. Lack of continuity for the business – if the proprietor dies or becomes incapacitated, the business automatically terminates unless a family member can take over the business

Advantages of partnership:

1. (General Partnership) Easy to establish – like sole proprietorship, partnerships are easy and inexpensive to establish
2. Complementary skills of partners – in successful partnerships, the parties’ skills usually complement one another
3. Division of profits – profits can be divided among partners with no restrictions
4. Larger pool of capital – each partner’s asset base improves the ability of the business to borrow needed funds
5. Ability to attract limited partners – there can be any number of limited partners as long as there is at least one general partner
6. Flexibility – a partnership can generally react quickly to a changing market
7. Taxation – the partnership itself is not subject to federal taxation, but the involved parties’ salaries are

Disadvantages of partnership:

1. Unlimited liability of at least one partner – the general partner has unlimited personal liability
2. Capital accumulation – partnerships usually have limitations and restrictions to raising capital
3. Restrictions of elimination for the general partnership – when other partners don’t have money to buy the partner’s part, the existing partners are forced to accept a new partner or dissolve the partnership
4. Lack of continuity for the general partnership – if one partner dies, the other partners may not be interested in overtaking that partner’s interests
5. Potential for personality and authority conflicts – friction among partners in inevitable and difficult to control

3. Explain the corporate form of ownership and how a business is incorporated

 A corporation is a business or organization formed by a group of people, and it has rights and liabilities separate from those of the individuals involved. It may be a nonprofit organization engaged in activities for the public good; a municipal corporation, such as a city or town; or a private corporation (the subject of this article), which has been organized to make a profit.

In the eyes of the law, a corporation has many of the same rights and responsibilities as a person. It may buy, sell, and own property; enter into leases and contracts; and bring lawsuits. It pays taxes. It can be prosecuted and punished (often with fines) if it violates the law. The chief advantages are that it can exist indefinitely beyond the lifetime of any one member or founder, and that it offers its owners the protection of limited personal liability.

4. List the differences between the S-Corporation and the limited liability company

 The main differences between an S corp. and LLC are:

• S-corporations are more restrictive on who the shareholders (owners) of the company can be
• S-corporations are required to pay a salary to those owners who work for the company and own more than 2% of the company. In contrast, LLCs are not obligated to pay a salary to its members (owners). This has tax implications for some companies like single-person ventures
• S-corporations are required to maintain and file formal records for the board and shareholder meetings
• S-corporations are allowed to have only one class of stock
• It is a little easier to set up employee stock option plans for S corporations than for LLCs

Practical questions:

How do you think the large corporation, VW, should handle the emission? Could they have done anything to prevent this scandal; and why do you think it happened?