ppt 5 - Types of Business Enterprises Pros/Cons

Proprietorships: Advantages

Direct Control
Less Expensive
More Flexibility
No documents to file
Receives all profits
Not taxed separately, considered personal income

Proprietorships: Disadvantages

- Unlimited Liability (if you get sued, they can take your house and car etc etc)
- No management, death in proprietor results in loss of business

Partnerships: Disadvantages

- Subject to unlimited liability
- Partner cannot sell their ownership interest in a partnership easily b/c of fudiciary duties

Partnerships' existence results from

contract, express or implied

Partnerships' existence if implied:

Uniform Partnership Act

Uniform Partnership Act

- Sharing of profits & liabilities
- Joint ownership of business
- Equal right to be involved in management

Limited Partnerships: Advantages

- Liability of limited partners limited to amount of investment opposite of liability
- May invest without becoming involved in management or business operation
- May be structured freely
- Taxes generally pass through

Limited Partnerships: Disadvantages

- Filings (certificate of LP) must be made w State
- General partner subject to unlimited liability
- Limited partner can't readily sell ownership interest unless it is registered under the federal securities law

limited partners are not allowed to manage the business if they do:

now subject to unlimited liability

Limited Partnerships consists of...

at least one General Partner and one or more Limited Partners (as many as you want on either side)

General partner(s) assume...

management responsibilities and retain unlimited liability

Limited partners contribute...

cash/property and owns an interest but do not participate in management; liability is limited to amount of investment

Limited Liability Companies: Advantages

- Liability limited to amount of investment across the board
- Maximum flexibility can invest w/o management, can manage w/o unlimited liability
- May be structured freely
- Taxes can be passed through to all members, avoiding large corporation taxes

Limited Liability Companies: Disadvantages

- Filings must be made
- State laws vary
- Ownership may be transferred but transfer may be restricted by terms of operating agreement
- Sale of interest subject to state & federal securities law

LLCs Hybrid taxes

can be taxed as a partnership (pass through entity) or corporation if two or more members (if one → proprietorship)

LLC is deemed to be a citizen of...

the State in which it's incorporated (filings are made); legal entity like corporation

Limited Liability Partnerships: Advantages

- Liability limited to amount of investment
- LLPs may structure operations according to partnership agreement
- Taxes can be passed through to all members, avoiding large corporation taxes

Limited Liability Partnerships: Disadvantages

- Filings must be made w the State
- Ownership interest not easily transferred

LLPs Hybrid Taxes

Allows benefit of pass-through entity for tax purposes but limits personal liability of partners

Corporations: Advantages

- Liability limited to amount of investment
- Corp has perpetual life until dissolved
- Stock holdings may be transferrable (but subject to fed securities law)
- Separate management & control (vs. stockholder investment)

Corporations: Disadvantages

- Filings must be made
- More expensive
- Double Taxation- corp taxed separately for any taxes received, shareholders then taxed again for remaining income distributed to them
- Managers may manage for own interests rather than for shareholder benefit

Partnerships: Advantages

- Ownership & control dispersed among partners
- Less expensive than corporations
- Separate legal structure; partners have flexibility
- Not taxed separately (pass through entity)
- Income & expenses passed to & divided among owners

LLCs: Articles of Incorporation must be filed with central state agency

Name of business, address, contact info for registered agent, names of owners, info on management