Дистанційне навчання 10-A (03.04.2021)
Lesson
Saturday, the third of April
Theme: Types
of companies. Forms of business organization.
What is a business
organization? By definition, it’s an institution created to engage in
commercial enterprise. There are different types of business organizational
structures, which are determined by factors including taxes, paperwork, how you
raise working capital and investment, as well as your amount of personal
liability.
Here are the 4 main types
of business ownership structures:
·
Sole Proprietorship
·
Partnership
·
Corporation
·
Limited Liability Company (LLC)
Sole Proprietorship
A sole
proprietorship is a
business owned by 1 person. It’s a business with no separate existence from the
owner, as all income and losses are taxed against their personal income tax
return.
Compared to other forms of business ownership, this
option requires the fewest documents to complete and file. Everything funnels
back to the owner, so there is no profit-sharing to sort through, making the
whole process very simple. Under this type of business organization, you’re
required to pay a self-employment tax against your income. You’re also directly
responsible for every asset, liability, profit and loss.
Advantages
·
Easy setup
·
Full control
·
You receive all of the profits
·
Direct access to feedback
Disadvantages
·
Unlimited liability
·
Full responsibility
·
High working
capital demands
Because a sole proprietorship ownership structure doesn’t
require you to separate the company from yourself as an individual, you could
choose to use your name as the name of your business.
Is a sole proprietorship the best type of business
organization for you? It depends on how much personal liability is a risk
in your job or overall industry. The following types of companies or
professions are better fits for organizing as a sole proprietorship:
·
Independent consultants
·
Tutors
·
Virtual assistants
·
Online drop-ship retailers
For those sole proprietorships, a good business
insurance policy would
shield against most issues. On the other hand, if your business operates in an
industry where personal liability is more of a risk, you should avoid a sole
proprietorship ownership structure.
The following types of companies and industries aren’t
best suited for that type of business organization:
·
The healthcare industry
·
Manufacturing
·
Repair
·
Personal care
·
Food and hospitality
Your personal assets are directly at stake in a sole
proprietorship, so be sure you’re protected in the event of unforeseen
circumstances.
Partnerships
A partnership is a type of business organization
between 2 or more people. As partners, these individuals share management of
the business and any profits
and losses.
Here are the 3 forms of partnerships:
Partnership types share similar features, though each has
different ownership and liability structures. In any partnership, each partner
must commit resources like capital, property or sweat equity such as skilled
work or labor to share in the business’s profits and losses.
In most of these forms of business ownership, at least one partner is tasked with making decisions about the business’s day-to-day operations. While it’s not legally required, each of these types of companies should draft a formal partnership agreement as proof of their arrangement. This document will lay out each partner’s ownership stake, liability limitations, as well as their voting structures and how business decisions for the company are to be made.
Corporation
A corporation
is a group of people united in one body for a specific purpose.
A corporation operates as a separate, legal body led by
an elected board of directors. The board is elected by shareholders, otherwise
known as the owners of the corporation. Depending on the size of the company,
one person can simultaneously be an officer, director and shareholder. Aside
from the ability to vote and a few other personal rights, corporations have the
same legal rights of an individual.
In the United States, a number of high-profile Supreme
Court cases (Burwell v. Hobby Lobby, Goldberg v. Kelly) have enabled
corporations to continue operating and protecting their assets as if they were
private citizens.
Unlike an actual person, a corporation can live on in
perpetuity, as long it is profitable. Shareholders can either sell or transfer
their shares, enabling the corporation to live in the event of a cashout or
death.
In these types of companies, the shareholders, officers
and directors are required to make decisions about the direction and execution
of business operations via formal votes. These votes and meetings occur
regularly and must be properly recorded in corporate minutes.
All of these meetings must abide by the reporting
requirements set forth by the state in which the company is incorporated as
well as in other states where a considerable amount of business is done. A
corporation can, within reason, protect its owners from being held personally
responsible for business debts and obligations.
Limited Liability Company
A limited liability company (LLC) is a type of ownership structure that
protects the owner’s personal assets in the event of a business fault or
accident.
When it comes to types of business organizations, the
LLC is the newest business classification around, combining some of the best features
of the other structures. An LLC provides the liability protection of a
corporation while still offering tax advantages and flexibilities of a
partnership.
However, structuring your business as an LLC won’t fully
prevent you from being personally liable if it’s determined the owner has acted
in an illegal, reckless or fraudulent manner. Owners can also be held responsible
if they have not properly distinguished the activities of their company from
their own personal interests.
Advantages
· Owner’s liability limited to their amount invested
· No minimum or maximum on the number of owners
· Owners can operate fully in the company
· Operating management flexibility
Disadvantages
· Increased organizational complexity
· Multiple tax classifications
The legal forms of structuring your business as an LLC
are established by each state —meaning the rules for each owner will differ
depending on their location. You’ll file the name of your LLC and your articles
of organization with the state in which you’ll operate.
You also might have to prepare an LLC operating agreement
stating each owner’s percentage of ownership in the company. This operating
agreement will indicate each owner’s distribution of shares, responsibilities,
voting power and the protocol if the owner wants to sell their stake in the
business.
Your state might require you to publish the establishment
of your LLC in your local newspaper as a statement of public record. Each state
has its own LLC fee structure, ranging from $100 to $500 paid during the
initial filing. States might also require an annual or biennial fee for
renewals.
Because an LLC is a state structure, there are no
specific tax forms at the federal level. These types of businesses can also
choose whether to be taxed as a corporation, partnership or as an individual.
Work with a CPA to determine which
tax election is most
advantageous for you.
Homework
Do exercise 12
Send a photo to my email till 17:00
You are free to ask questions
