BLAW 2301 Lecture 31: BLAW CHAPTER 31
26 Jun 2018
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CHAPTER 31: STARTING A BUSINESS (LLC’s AND OTHER OPTIONS)
•Sole proprietorship: An unincorporated business owned by a one person. Most common form
of business in the U.S. EX: mowing lawns. Can have employees in a company but one person is
the sole owner.
oAdvantages:
- Ease of formation
- Taxes: flow through tax entity. The organization taxes are paid thru YOUR
individual income tax. (not a taxable entity).
oDisadvantages:
- Liability: sole proprietor is personally liable for all debts
- Limited capital: options are pretty limited, debt is generally her only source of
working capital
Corporations
oAdvantages:
- Limited liability: shareholders do not have personal liability for corporation
debts
- A corporation doesn’t protect against liability for a person for their own
negligence.
- Transferability of interest: stock can be bought and sold easily
- Duration: perpetual existence, can continue without their partners
oDisadvantages:
-logistics: take more effort to operate
-taxes: taxable entity. Shareholders must pay tax on dividends. (double
taxation).
Special type of corporations:
find more resources at oneclass.com
find more resources at oneclass.com
oC corporations have double taxation. C also has limited liability.
oS corporations, has both limited lability and tax status of a flow through entity.
–Can only be one class of stock
–There can be no more than 100 shareholders
–Shareholders must be individuals, estates, charities, pension funds or
trusts, not partnerships or corporations
–Shareholders must be citizens or residents of the United States, not
nonresident aliens
–All shareholders must agree that the company should be an S
corporation
Close corporations:
oA corp with small # of shareholders whose stock is not publicly traded and whose
shareholders play an active role in management. So…
Protection of Minority Shareholders: Close corporation laws typically require
that majority shareholders owe fiduciary duties to minority shareholders
Transfer Restrictions: restriction of transferability of the shares
Flexibility
Dispute Resolution: how to resolve disputes if it occurs
LLC: Limited liability company
- Owners of LLC are called members (can just have one member too)
- Is like a S corp
- Limited liability: Members are not personally liable for the debts of the LLC
- Tax status: Tax status of a flow-through entity
oFormation:
- Only required doc is a charter: short, basic info. Filed with secretary of state.
- Operating agreement: sets out rights and obligations of the members
oFlexibility:
- Unlike S corporations, LLC’s can have members that are corporations,
partnerships or nonresident aliens
- Not required to hold annual meetings or maintain a minute book
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Chapter 31: starting a business (llc"s and other options) Sole proprietorship: an unincorporated business owned by a one person. Most common form of business in the u. s. ex: mowing lawns. Can have employees in a company but one person is the sole owner: advantages: The organization taxes are paid thru your individual income tax. (not a taxable entity): disadvantages: Liability: sole proprietor is personally liable for all debts. Limited capital: options are pretty limited, debt is generally her only source of working capital. Limited liability: shareholders do not have personal liability for corporation debts. A corporation doesn"t protect against liability for a person for their own negligence. Transferability of interest: stock can be bought and sold easily. Duration: perpetual existence, can continue without their partners: disadvantages: Shareholders must pay tax on dividends. (double taxation). Special type of corporations: c corporations have double taxation.
