Business Organizations-Econ

Liability

A legally obligation to pay debts (future obligations)

Warranties

Retirement plans for employees

Outstanding gift certificates

Things in contracts

Lawsuits

Legal disputes between parties

Taxes

Money collected by the government to pay for services or to steer production of items in one direction or another

Exercise taxes

Taxes on alcohol and cigarettes

Punitive taxes

Taxes imposed to discourage certain behaviors

Personal income tax

Tax on individual earnings

Capital gains tax

Tax on the profit from the sale of an asset

Corporate income tax

Tax on the income of corporations

Fed rate on US corporations

Was 35%, now 21% (good for business, bad for US budget)

Write offs

Investments in new equipment can often be subtracted from taxes owed

Sole Proprietorship

A business owned and managed by a single individual

Positives of Sole Proprietorship

Simple and inexpensive to set up, easy to run

Negatives of Sole Proprietorship

Unlimited liability, no tax advantages, hard to get investors

Partnership

A business organization owned by two or more persons who agree on a specific division of responsibilities and profits

General partnership

Assumes that profits, liability, and management duties are divided equally

Limited partnerships

Allow partners to have limited liability and limited input with management decisions

Joint ventures

Act as general partnerships for only a limited period of time or for a single project

Liability issue in Sole Proprietorships and Partnerships

Most would buy Liability insurance (umbrella coverage) that would offer a million dollars of coverage

Limited Liability Corporation (LLC)

A hybrid type of legal structure that provides limited liability features of a corporation and tax efficiencies of a sole proprietor

Positives of LLC

Relatively simple and inexpensive to set up, limits liability, has tax advantages

Negatives of LLC

Partners are self-employed and must pay self-employment taxes, may have to dissolve the business if a partner leaves

Limited Liability Partnerships (LLP)

A hybrid type of legal structure that provides limited liability features of a corporation and tax efficiencies of a partnership

Positives of LLP

Relatively simple and inexpensive to set up, limits liability, has tax advantages

Negatives of LLP

Partners are self-employed and must pay self-employment taxes, no need to dissolve the business if a partner leaves

Corporation (incorporated or Inc.)

A legal entity owned by individual stockholders

Franchise

Business structure where a company grants others the right to sell a good or service within an exclusive market using their name

Franchisor

Parent company that sells the right to the concept and supplies resulting stores with product, advertising, and methods of operation for a % of revenue

Franchisee

Local owner who purchased the rights to the concept for an area

Co-op (Cooperative)

Business structure where shares of ownership are sold as membership in a common mission instead of as an investment

Non-Profit

An organization recognized by the government as having a mission to further a social cause or provide a public benefit