Forms Of Ownership Flashcards
What are the three legal forms of ownership
Sole proprietor
Partnership
Corporation
Form of ownership affects
• Operation
• Administrative start-up costs
• Profit distribution
• Taxes
> it is a big decision
- Legal form, 2. liability of owners, 3. permanence, 4. complexity to start up and 5. how owners make profit
for sole proprietorship and general partnership
- Sole proprietorship and general partnership
- Unlimited liability : owners personally responsible for business’ debts
- Existence tied to the or were
- Only need to register
- Directly make profit; business income added to personal income for tax purposes
- Legal form, 2. liability of owners, 3. permanence, 4. complexity to start up and 5. how owners make profit
for corporations
- Corporation
- Limited to amount invested by the shareholder
- Continues to exist despite changes in the shareholders
- Need to register, incorporate, produce financial and other reports, hold board meetings, and follow other procedures
- Dividends must be declared by the board of directors
Sole proprietorship advantages and disadvantages
Advantages :
- Ease of formation (only need to register) Limited paperwork & regulations
- Retention of control and profits
Disadvantages :
- Unlimited liability
- Lack of permanence and impossible to transfer as a whole
- Limited financial resources (cannot sell shares, harder to get loans)
- Limited ability to attract and maintain talented employees
General partnership advantages and disadvantages
Advantages :
- Pooled financial resources
- Shared Responsibilities
- Ease of formation
- Possible tax advantages
>Still need to register the business
Disadvantages
- Unlimited and joint liability
- Lack of continuity / difficult to transfer without a contract
- Possible disagreements
- Need for contract (suggested)
Limited vs general partnerships : define each
General: Have the right to participate in the management of the firm and share in any profits/losses but have unlimited liability.
> there is always a general partner
Limited: Contribute financially and share in the profits; cannot actively participate in management but have limited liability
Info on corporations
• What are they?
– A legal entity, separate and distinct from its owners
• What can they do?
– Able to own property, enter into contracts, borrow money and initiate legal proceedings
• Who owns them?
– Shareholders (one or many)
• Who oversees their operation?
- Board of Directors; lead by the Chairman; elected by the shareholders to represent their interests
- Board establishes the mission and objectives; selects the President and/or Chief Executive Officer (CEO) and other officers and delegates daily management to them; the senior management team reports to the President and/or CEO
• How do owners profit?
- Dividends approved by board of directors; appreciation in share price
Cooperate structure : roles of shareholders (actionnaires)
•Own the corporation through shares
•Make decisions by voting and passing resolutions, generally at a shareholders’ meeting, are most concerned by their return on investment.
•Elect the directors of the corporation
•Can receive dividends (profits redistributed to the owners)
Cooperate structure : roles of directors
The board of directors has ultimate legal responsibility for the actions of the corporation and its subsidiaries, officers, employees, and agents.
A corporate director’s duties and responsibilities typically include:
- Acting on behalf of the corporation and its best interests with an appropriate “duty of care” at all times;
- Acting with loyalty to the corporation and its shareholders;
- Participating in regular meetings of the board of directors;
- Approving certain corporate activities and transactions – including contracts and agreements; election of new corporate officers; asset purchases and sales, approval of new corporate policies; and more;
- Amending the corporation’s bylaws or articles of incorporation.
> A small corporation might have one director (who may also serve as the sole officer and shareholder), while a large corporation may have 10 or more people
Corporation structure : roles of corporate officers
- Oversee the business’s daily operations,
- Have legal authority to act on the corporation’s behalf in almost all lawful business- related activities.
- Officers are usually appointed by the corporation’s board of directors, typical corporate officers include:
• Chief Executive Officer (CEO) or President.
> The CEO has ultimate responsibility for the corporation’s activities, and signs off on contracts and other legally-binding action on behalf of the corporation. The CEO reports to the corporation’s board of directors.
•Chief Operating Officer (COO).
> Charged with managing the corporation’s day-to-day affairs, the COO usually reports directly to the CEO.
•Chief Financial Officer (CFO) or Treasurer.
> The CFO is responsible (directly or indirectly) for almost all of the corporation’s financial matters.
•Secretary
> The corporation’s Secretary is in charge of maintaining and keeping corporation’s records, documents, and “minutes” from shareholder meetings.
Requirements to set up a corporation
Select Corporate Jurisdiction
Select Corporate Name
Determine Corporate Name Availability
Complete Articles of Incorporation
Submit & Register Articles of Incorporation
Purchase Corporate Seal & Minute Book
Complete Corporate By-Laws, Organizational Minutes & Issue Shares
Obtain Other Permits & Licenses Set Up Bank Account
Start Your Business!
Requirements to keep a corporation in good standing
• File an annual return with up to date information about the corporation (public info)
• Report changes in directors
• Keep articles of incorporation up to date
• File an annual tax return (financial statements will be required to do this)
• Hold board of directors’ meetings and shareholders meeting
Corporation advantages and disadvantages
Advantages :
- Limited liability for owners
- Permanence; existence not tied to the shareholders (owners)
- Greater ease of financing (shares/loans)
- Easier to transfer ownership by selling company shares
- Specialized management
Disadvantages :
- Paperwork and admin, fees to form
- More complex administration due to reporting regulations
- Double taxation on income (corporate profits and dividends to owners)
- Conflicts of interest (if more than 1 owner/shareholder)
Infos on cooperatives
- What are they? A legal entity, separate and distinct from its members
- What can they do? Able to own property, enter into contracts, borrow money and initiate legal proceedings
- Who owns them? Members (one or many)
- Who oversees their operation?
• Board of Directors; Members elected by members to represent their interests
• Establishes the mission and objectives
• Selects the corporate officers and delegates daily management to them - How do members profit?
• One member = one vote
• Liability limited to their investment
• As owners & users, by the quality of the services rendered to members
• As owners & users, by the redistribution of surpluses to special funds or to the members
