Chapter 2 Business Planning and Organization

1. Chapter 2 Business Planning and Organization BCN 4708 Fall 2008

2. Business Types • Sole Proprietorship • Partnership • General Vs Limited • Joint Ventures • Corporation • S-Corporation aka Subchapter S

3. Sole Proprietorship • Simplest form of Business organization • Owner is manager and makes all decisions • Compliance with state and local business licensing requirements only • Advantages: easy to create, total control by owner, transferable, and liquidity • Disadvantages: personal liability, death of owner, must use property to secure loans, taxes and benefits not tax deductible.

4. Partnership • Two or more persons in an agreement • Co-owners • liability • Partnership agreement (like a Business Plan) • General Partnership • Pooled resources • Limited Partnership • At least one general partner and one or more limited partners • Limited partner Capital for Return on capital • Limited say limited liability

5. Partnership • Advantages: increased ability to raise capital, pooling of resources, pooling of talents, shared responsibility and minimal administration costs. • Disadvantages: General partners have unlimited liability, termination upon death, bankruptcy or withdrawal, non-transferable, benefits not tax-deductible

6. Joint Ventures • Special combination of two or more persons or entities. • Specific Venture • No designation as a partnership or corporation • Same rules as partnership • Usually limited to single transactions

7. Corporation • Creations of statutes • Separate legal entity under the laws of state • Same rights as individuals have • Most costly to form • Issues Stock • ESOP

8. Corporation • Advantages: Exemption of liability, continuity of existence, death has no effect, high level of management, transferable ownership, fringe benefits are tax deductible, and able to raise capital. • Disadvantages: Lack of centralized control, closely regulated, expensive, record keeping, and double taxation.

9. S-Corporation • Shareholders absorb all corp. income or losses; report as individual taxpayers. • Eliminates the problem of double taxation. • IRS regulations • Has most of the same advantages and disadvantages.

10. S-Corporation • Must be domestic • One class of stock • Only individuals and estates can be shareholders • Cannot be part of another organization • Max number of shareholders • No non-resident alien shareholders • 20% of revenue must be from domestic sources • Dividends, interest, royalties, rents, annuities, and securities transactions < 20% of total revenue

11. LLC • Owners will be the same from the beginning to the end.  • There is no stock in an LLC.  • The ownership is represented by 100% membership interest.  • Typically used when you have investment in real estate or a rental property, • The tenants should have no doubt that the owner is not you, it is a company.  • An LLC is treated like a corporation for tax purposes.  • It can have the same flow through attribute an S corporation is allowed.  • It can also have a closed status, like a C corporation.  • There is no record keeping requirements with an LLC.  • There is no board of directors.  • No requirement to hold board of directors or shareholders meetings.  • Therefore there are no corporate minutes. 

12. Control of Business • Sole Proprietorship – absolute power over all decisions. • Partnership – Control is shared between partners as per the agreement • Corporation- depends on stock ownership, exercised through regular board meetings by the board of directors