OVERVIEW OF BUSINESS ORGANIZATIONS

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OVERVIEW OF BUSINESS ORGANIZATIONS
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Introduction

• Sole Proprietorship
• Partnerships
• General Partnership
• Limited Partnership
• Limited Liability Partnership
• Corporation
• Close Corporation
• Publicly Held Corporation
• S Corporation
• Limited Liability Company

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Factors to Consider in Choosing Forms of Business
Organizations

• Creation
• Control
• Limited liability
• Taxation
• Duration
• Ability to raise capital
• Advantages
• Disadvantages

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SOLE PROPRIETORSHIP

• Creation
• Control
• Limited liability
• Taxation Tax Form Schedule C
• Duration
• Ability to raise capital
• Advantages
• Disadvantages

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PARTNERSHIPS
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Types of Partnerships
General
Limited
GP
Passive Investor
Passive Investor
GP
GP
GP
GP
Passive Investor
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GENERAL PARTNERSHIPS
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The UNIFORM PARTNERSHIP ACT defines a partnership
as

• an association of 2 or more persons
• carrying on a business
• as co-owners
• for profit

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GENERAL PARTNERSHIP

• CREATION
• CONTROL
• LIABILITY
• TAXATION Form 1065
• DURATION
• ABILITY TO RAISE CAPITAL
• ADVANTAGES
• DISADVANTAGES

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LIMITED PARTNERSHIPS

• Georgia Filing Procedures

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LIMITED PARTNERSHIP

• CREATION
• CONTROL
• LIABILITY
• TAXATION
• DURATION
• ABILITY TO RAISE CAPITAL
• ADVANTAGES
• DISADVANTAGES

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Corporations
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Incorporation

• Where to Incorporate
• Steps in Incorporation
• Preparation of the articles of incorporation
• Signing and authenticating the articles by one or
  more of the incorporators
• Filing the articles with the Secretary of State
  and paying all required fees
• Issuance of the certificate of incorporation by
  the Secretary of State
• Holding an initial organizational meeting

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Corporate Managerial Control
Shareholders
Elected
Board Of Directors
Officers
Hired
Employees
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Duties of Directors and Officers

• Duty to Act within Authority
• Ratification
• Duty of Due Care and Diligence
• Prudent Person Standard
• Business Judgment Rule
• The Business Judgment Rule in the Takeover
  Context
• Deal Protection Devices
• Legislative Responses to Increased Director
  Liability
• Charter Option Statutes
• Self-executing Statutes
• Cap on Monetary Damages Statute

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Duties of Directors and Officers

• Duty of Loyalty and Good Faith
• Self-Dealing
• Usurping Corporate Opportunities
• Freeze-Outs, Oppression, and Bad Faith
• Trading on Inside Information
• Directors Right to Dissent

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Corporate Taxation

• Business Profit Tax Form 1120 (or Form 1120-A)
• Shareholder/Dividend Distribution Tax
• Avoiding Double Tax
• Closely Held- Reasonable Officer Salary
• Employee/Shareholder Expense Account
• Capital Structure- Equity v. Debt
• Accumulate Earnings- No Dividend
• File Subchapter S

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Corporate Characteristics

• LIABILITY
• Limited for investors (unless corporation is a
  sham.)
• Officers directors may have some liability
• DURATION/CONTINUITY
• Can outlive its creators/owners
• Ownership can be sold subject to security laws
  shareholder agreements

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Corporate Characteristics

• ADVANTAGES
• Practical means of bringing large number of
  investors together.
• Limited liability for investors
• Perpetual existence
• Shareholders can also be employees

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Corporate Characteristics

• DISADVANTAGES
• Cost of forming maintaining
• License fees franchise taxes
• Double taxation
• Must be qualified in all states where it is doing
  business
• More government regulation

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Organizational Form Hybrids

• S Corporations
• Legal Characteristics Of Corporation
• Can Elect To Be Taxed As Partnership
• Limited Liability Company
• Nontaxable Entity
• More Flexible Than S Corp.
• Shareholders Members

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S Corporation

• Domestic
• Not a member of affiliated group
• Shareholders can be individuals, estate,
  certain trusts
• 100 or fewer shareholders
• Only one class of stock
• No nonresident aliens

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S Corporation

• Tax Form 1120s

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Historically, for tax purposes, an organization
with at least 5 of the following characteristics
was considered a CORPORATION

• Association of owners
• Carrying on business
• Continuity of life
• Separation of ownership management
• Limited liability
• Free transferability of ownership interests

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• Starting in 1997, check the box rules became
  effective.

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Limited Liability Companies

• Creation
• Filing of articles of organization with secretary
  of state
• Legal Status
• Separate entity
• Operation
• Separate and distinct from members
• Transferability
• Dissolution

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Limited Liability Partnerships

• Creating an LLP
• File LLP form with the state
• Managing the LLP
• Equal voice in management unless altered by
  agreement
• LLP Taxation
• LLP pays no income tax
• Partners report share of LLPs profit on personal
  return

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Which form of business organization should they
use?

• Adam, Bonnie, and Carl want to open a Thai
  restaurant.
• Adam has no money to invest, but he has a
  bartenders license and was an assistant manager
  at a restaurant for 10 years.
• Bonnie is a dentist who is looking for an
  investment.

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Which form of business organization should they
use?

• Carl has 20,000 in savings. He can invest some,
  but needs the rest to send his daughter to
  cosmetology school. He has tried several
  business ventures in the past, but they have all
  been failures. He hopes this one will make it
  and he is counting on his best friend, Adam, to
  help him.

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Which form of business organization should they
use?

• Before forming their business, Adam and Carl
  learn that Bonnie has been performing some
  unauthorized procedures while her patients are
  anesthetized. She is now being hit with dozens
  of lawsuits. Should they consider different form
  of business entity?