Chapter 13 Flashcards
questions to ask prior to making decision on which type of legal form to choose
1) does the founding team have all the skills needed to operate this venture?
2) do the founders have the capital required to start the business alone or must they raise it through equity capital or debt?
3) will the founders be able to run the business and cover living expenses for the first year?
4) are the founders willing and able to assume personal liability for any claims against the business?
5) do the founders wish to have complete control over the operations of the business?
6) do the founders expect to have initial losses or will the business be profitable almost from the beginning?
7) do the founders expect to sell the business some days?
sole proprietorship
one owner;
startup costs: filing fees for DBA and business income;
owner liability for all claims against business but with insurance can overcome liability;
taxed at individual level
dissolution on the death of the owner;
owner free to sell; assets transferred to estate upon death with valid will;
profits go to owner;
owner has full control
partnership
no limit of owners;
startup costs: filing fees for DBA; attorney fees for partnership agreement;
general partners liable for all claims; limited partners liable only to amount of investment;
pass-through; taxed at individual level;
dissolution on the death or separation of a partner, unless otherwise specified in the agreement; not so in the case of limited partners;
general partner requires consent of other generals to sell inters; limited partners’ ability to transfer is subject to agreement;
profits shared based on partnership agreement;
absent an agreement to the contrary, partners have equal voting rights
limited liability company (LLC)
no limit to number of owners; most states requirer a minimum of 2 members;
startup costs: attorney fees for organization, documents; filing fees;
members liable as in partnership;
pass-through; taxed at individual level;
most states allow perpetual existence; unless otherwise stated in the Articles of Organization, existence terminates on death or withdrawal of any member;
permission of majority of members is required for any member to transfer interest;
profits shared based on member agreement;
management control rests with management committee
Subchapter S-Corporation
100 shareholders or fewer;
startup costs: attorney fees for incorporation documents; filing fees;
shareholders liable to amount invested;
pass-through; taxed at individual level;
perceptual existence;
shareholders free to sell unless restricted by agreement;
profits paid to shareholders as dividends according to agreement and shareholder status;
management control rests with the board of directors appointed by the shareholders
C-Corporation
no limit of shareholder;
startup costs: attorney fees for incorporation documents; filing fees;
shareholders liable to amount invested; officers may be personally liable;
tax-paying entity; taxed on corporate income; continuity of life;
shareholders free to sell unless restricted by agreement;
profits paid to shareholders as dividends according to agreement and shareholder status;
management control rests with the board of directors appointed by the shareholders
issues to address with an attorney about partnerships
1) the legal name of the partnership
2) nature of the business
3) duration of the partnership
4) contributions of the partners
5) sales, loans, and leases to the partnership
6) withdrawals and salaries
7) responsibility and authority of the partners
8) dissolution of the partnership
9) arbitration
B-Corporation
benefit corporation; for-profit with a social mission
non-profit
corporation established for charitable, public (scientific, literary, or educational), or religious purposes, or for mutual benefit (such as trade associations, tennis clubs), as recognized by federal and state laws
