MGT3960 Entrepreneurship Management Fall 2015

• WHAT ARE THE FACTORS IN DECIDING WHAT FORM OF OWNERSHIP IS BEST SUITED FOR THE POTENTIAL BUSINESS?

There are several factors that need to be considered when deciding what form of ownership is right for a business. Some of these important factors are:  how many owners the business will have, what kind of product or service will be provided, the capital that will be needed to start the business, the financial situation in general, and also what sources of income there will be.

• BRIEFLY DESCRIBE THE ADVANTAGES AND DISADVANTAGES OF A SOLE PROPRIERTORSHIP AND PARTNERSHIP.

There are some advantages and disadvantages for both a sole proprietorship and partnership. A sole proprietorship is a very simple type of business structure; an advantage is that it is easy to start compared to a partnership since it is only owned and managed by the same person. Unlike a sole proprietorship, a partnership is owned by more than one person and can be more complex.  A sole proprietorship is required to do some filing, but these filings are not as complex as and the requirements set up for a partnership.  Another advantage of a sole proprietorship is that the owner of the business can report the business income and expenses as his/her own individual tax return, and all the profit that is made does not have to be share, it is only collected by the owner. A disadvantage, however, is that a sole proprietorship can be very risky because having a business is a lot of responsibility and if the business is sued, then the owner will be sued too, if the business goes bankruptcy the owner will be the only and most affected one too because since there is no separation between the owner and the business, if the business goes bankruptcy, the owner will too.

• EXPLAIN THE CORPORATE FORM OF OWNERSHIP AND HOW A BUSINESS IS INCORPORATED

The form of ownership in a corporation consists in that the business is declared separate, legal entity and it incorporated and guided by a group of officers known as the board directors.

• LIST THE DIFFERENCES BETWEEN THE S-CORPORATION AND THE LIMITED LIABILITY COMPANY.

Some of the differences between the s-corporation and the limited liability company are:  In a S-Corporation the ownership is restricted by the IRS, and they can have directors and officers, whereas, in a LLC, owners can choose whether to have managers manage the corporation.  S-corporation can sell stocks while the LLC can’t; and also unlike the LLC, the S- corporation can be transferable as long as the IRS ownership restrictions are met.

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

-First thing to think about is what kind of business are we willing to run. In what sector is it going to be stablished, size of the business and future growths.

-When this is all decided, you need to know which is the best way to manage this bussines, would be a single person taking responsabilities, or a board of some members managing it.

-After that, I would jump into financiation asking if I am only going to financiate, or I will need co-owners to get more finance for business. Or might need financing from other sources as banks or shareholders.

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

-Sole Propietorship:

This is the simplest structure chosen to start a business. It is an unincorporated business owned and run by one person with no distinction between the business and you, the owner. You are entitled to all profits and are responsible for all your business.

Advantages:

• You are entitled to all profits and responsabilities.
• Low costs to run the business.
• Privacy.
• Legal structure easy to change if needed.
• Easy to close the business.

Disadvantages:

• Unlimitted liability, business debt and liabilities are yours also.
• Hard fund raise.
• High pressure of running a business by your own, not beeing able to relay in others.
• Business life it is limitted.

-Partnership:

This is business owned by two or more people. Each partner shares all the aspects of the business such as responsability, money, labor, profits or losses.

Advantages:

• Skills contribution to the business is greater than the skills a single person can contribute to a business.
• Easy and inexpensive stablish start-up.
• Better financial commitment.
• Partnership can be use to icentivate employees.

Disadvantages:

• Unlimited liability among the partners.
• Disagreements and friction among partners and management.
• Shared profits with shareholders.

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, or a private corporation which has been organized to make a profit. A corporation has many of the same rights and responsibilities as a person. Some of the 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.

• LLCs provide liability protection for their members, while S-Corp provides it for shareholders.
• S-Corp are not taxed while LLcs are.
• The management structure of S-Corp. is more rigid than the LLC´s is.
• S-Corps can sell stock so its easier to raise capital, while LLC can not.

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

-The factors that determine what form of ownership is best suited for the potential business are first identifying the legal structure in regards to liability, law and attracting capital. Also you want to decide on the businesses long/short term needs and take into consideration tax payments. You might want to go over how much capital is needed for this business and if there will be any continuity.

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

-The advantages of a sole proprietorship include: the owner makes all the call, the business can be terminated at any time due to a single ownership, least regulated form of ownership and it has a profit incentive meaning after all debts are paid, all profits go straight to the owner.
The disadvantages of a sole proprietorship are as follows: there can be a lack of skill in certain areas due to there only being one person and most of all, the owner is liable for all debts and creditors can go after personal assets because of this.

-The advantages of a partnership are: they are easy to establish, your partner(s) may compliment each others lacking skill, more flexibility, and they are not subject to federal taxation.
The disadvantages of a partnership include: unlimited liability to one partner usually being the general partner, restrictions on raising capital, and the potential for conflict between partners.

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

-A corporate form of ownership is a separate legal entity apart from its owner(s) and may engage in business, sue or be sued, issue contracts and pay taxes. Here the stock holders are the owners. The three primary sections of a corporation are its stock holders, board of directors and the officers.
The incorporation of a business varies from state to state. However generally speaking the easiest route involves you requesting forms and information from the local secretary of state, obtaining an agent for the business, selecting the corporate name (You have 30 days to this part), and preparing a certificate of incorporation with filing fees and your first annual charge.

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

-The differences between the two are as follows: an S-corp doesnt have to pay double taxation and is taxed like a partnership, and has restrictions on ownership. Whereas a LLC can any number of owners, is not owned by the stock holders, easy to form/establish and contributes and distributes property tax free.

After reading this chapter and getting a better insight on the different forms of ownership I believe I might go with a partnership in regards to opening my own local gym.

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

According to our text there is no way of deciding what the is best form of ownership for a business.  You can prepare to do so by asking yourself the the following questions:

1. How big can the business become?  (Do you see it becoming a franchise? Maybe a corporation is best)
2. How much control do you need in the decision making process of the company? Are you willing to share ideas and the business’s potential profits with others who can help build a more successful business?  (If you want to make a decision on everything fast and up to only you maybe a sole proprietorship is better)
3. How much capital is needed to start a business? (Need more capital? Maybe a sole proprietorship isn’t best)
4. What tax considerations are important? What sources of income are there, and how they are sheltered?
5. In case of failure, to what extent are you willing to be personally responsible for debts created by the business? (Want all the debt to fall on the business and not be liable? pick a corporation)
6. Is it important that the business continues in case of owner incapacity or death?
7. Who will be the sole or major beneficiary of the business success? Is the owner the type of person who doesn’t mind taking all the risk but expects to reap all the benefits if successful?
8. Can you put up with the the time consuming bureaucratic red tape associated with more complicated form of ownership? what is your emotional reaction to government regulations and their accompanying paperwork requirements?

Based on how you answer these questions based on the business that you would like to start you will be able to decide which is one of the better forms of ownership for your company.

2. Any form of business has its advantages and and disadvantages. Below is a table where you can see two forms of ownership with their advantages and disadvantages.

(sorry for is being a little blurry it was made on word and then created into an image)

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

A corporation(according to ,www.sba.gov ) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.

Steps to incorporate a business,

1. Select a name an see if it is available
2. Establish presence on the internet, contact suppliers, file paperwork, obtain insurance,
3. Federal tax forms, state tax forms, pay corporate tax or state tax, secure first round of capital, and establish relationships with the bank
4. Select an attorney
5. Select an accountant
6. Name registration
7. Get a FEIN
8. Make sure all insurance issues are resolved

4. List differences between an s-corporation and the limited liability company.

While there are many things that I could say there are differences about, I have listed just a few below:

– In s-corporations owners pay some of the taxes when but in  LLC the corporation cays all of it.

– In corporations statutory meetings aren’t required

– There is no limit in LLC on the amount of owners and if the shareholders are domestic.

– A LLC cannot be taken public

First I would like the mention that there is no one “best” form of ownership. All companies start small, but as to whether you want to start it yourself or with partners is your choice of course. To find out what type ownership suits you, there are a couple of factors one must consider before making a choice. The main factors I would definitely consider are:

How much capital is needed to start up the company?

How big can this business become later on?

Who would be liable for the debts if the business fails?

These are just some of the factor an entrepreneur must consider.

As I mentioned before, when starting up a business, would you consider starting up yourself(Sole Proprietorship) meaning you own the whole business yourself, or would you consider starting up with business partners(Partnership). This is very important choice, as there are advantages and disadvantages to both types or ownerships.

Sole Proprietorship(Advantages)

• Terminated at anytime.
• Keeps all profits.
• Has right to make all decisions.
• Least amount of regulations in owning a business.

Sole Proprietorship(Disadvantages)

• Take on all liability.
• Requires license.
• Due to there no difference between the owners personal and business debts, creditors can sue to collect personal assets.
• Limited skill set, if owner does not have required skills to make business succeed.

Partnership(Advantages)

• Easy to establish.
• Not limited to one persons skill set.
• More capital to invest.
• Attract limited partners to join in on the business.
• Taxes gets divided between the partners.

Partnership(Disadvantages)

• Unlimited liability
• If one of the partners dies, not transferrable through inheritance.
• Partnership requires more than one owner. There maybe conflicts between the two owners.

Compared to Sole Proprietorship and Partnerships, a corporation is a separate legal entity and may do business, issue contracts, sue and be sued, and pay taxes. A corporation can be formed by simply filing an application for a charter with the respective state. By filing this application, the incorporator will put on record facts, such as:

• the purpose of the intended corporation,
• the names and addresses of the incorporators,
• the amount and types of capital stock the corporation will be authorized to issue, and
• the rights and privileges of the holders of each class of stock.

The Main difference between S-Corporation and a Limited Liability Company are how they fill taxes differently. The S-Corp would have to file a business tax return, as where a LLC only files the business tax return if there are more than one owner.

There are three most important factors to consider before choosing form of ownership for your company,

1. Company Size – how big you want to grow your company
2. Tax Consideration – avoid unnecessary cost
3. Risk and Return – how much risk you want to take and how much return you expect to get also help you to determine your company form of ownership

Advantages of a Sole Proprietorship

1. Profit Incentive
2. Total Decision-Making Authority
3. No Special Legal Restrictions
4. Easy to Discontinue

Disadvantages of a Sole Proprietorship

1. Unlimited Personal Liability
2. Limited Skills and Capabilities of the Sole Owner
3. Limited Access to Capital
4. Lack of Continuity for the Business

A corporation is a separate legal entity apart from its owners and may engage in business, issue contracts, sue and be sued and pay taxes. The Owners of a corporation hold stock in the corporation. Each share of stock represents a percentage of ownership. The actual business of the corporation is conducted by the directors and officers of the corporation.

Steps to incorporate a business,

1. select a local agent
2. select the corporate name and check on the availability
3. prepare the Certificate of Incorporation

Even though LLC and S-corp are similar in many ways, but they still have few differences between each other.

1. LLC is easy to form and maintain without extensive records
2. LLC tends to have a very small number of owners
3. LLC can not take the company public
4. Restrictions on transfer of ownership
5. LLC may need to pay double tax like C-corp