COMM 103 Chapter Notes - Chapter 13: Limited Liability Partnership, Legal Personality, Market Capitalization

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Comm 103
Brittney Gerlock
Business: Chapter Thirteen Notes !
Business Ownership Options!
Factors for legal formation of a business:
must be reviewed throughout organization’s life cycle
structure is adjustable
1. Ease of business set-up & operation
2. Degree of owner control
3. Magnitude of risk (financial, operational, legal)
4. Financial capacity
5. Required skills (degree of expertise for management)
Sole Proprietorships
commencement by a single individual
no separate legal entity (debts & income are treated as personal to the owner);
sole proprietor has 100% ownership and exposure to liabilities
limitations: personal skills & capital capacity
Partnerships
formed by two or more individuals
partnership agreement: outlines the expectations of each partner and how partnership
will work; percentage of ownership
joint and several liability: liability obligation of partners as a result of the legal contact;
responsibility is shared and any partner can be held liable for unpaid obligations
partners can collectively take advantage of skills & competencies
buy-sell agreement: written agreement among partners that details the sale by one
partner and the purchase by another of the business inters o the selling partner
limited liability partnership (LLP): made up of both general (managers/liability assumers)
partners & limited (passive) partners who only contribute capital
Corporations
distinct legal entity separate from owners
incorporation: legal process of setting up a corporation
board of directors: appointed/elected body of a NFP/FP that oversees and advises
management on issues
longer time & greater capital needed to establish
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Comm 103
Brittney Gerlock
shareholders are protected from being held liable & overtype rights are clearly defined
based on % stock owned
may raise capital by issuing stock & can take advantage of tax incentives
greater access to a range of skills & competencies
private corporations: ownership is privately held (no public trading of shares)
public corporations: shares of stock are issued through an IPO (initial sale of stock
through public exchange)
!-on at least one exchange (organization that facilitates the trading of securities, !
!stocks, commodities, and other financial instruments) OR in over the counter (OTC) !
!market (traded publicly through dealer network)
Business Evolution!
owners & managers must be aware of financial capacity, liability exposure, and required
skill set
the need to raise capital plays an important role in decision making process
Funding the Organization !
Capital structure: organization’s use of debt, internal cash reserves, and external equity-
based investments in financial support of operations
manage the debt/equity ratio (how much debt had been incurred or may be incurred
and whether this adds significant risk to financial stability)
Source of Funds (FP)
1. Funds from Operations
current-year operating profits: excess dollars that an organization has generated &
have at their disposal
!-total revenue-total operating expenses
!-unless paid out to investors/shareholders, source of new capital to reinvest
retained earnings: dollar amount of net earnings that has accumulated over operation &
held within the organization (shareholder’s equity)
!-must be in liquid form (cash or near cash)
2. Credit Facilities (debt financing)
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Document Summary

Sole proprietorships commencement by a single individual no separate legal entity (debts & income are treated as personal to the owner); sole proprietor has 100% ownership and exposure to liabilities limitations: personal skills & capital capacity. Corporations distinct legal entity separate from owners incorporation: legal process of setting up a corporation board of directors: appointed/elected body of a nfp/fp that oversees and advises management on issues longer time & greater capital needed to establish. On at least one exchange (organization that facilitates the trading of securities, stocks, commodities, and other nancial instruments) or in over the counter (otc) market (traded publicly through dealer network) Business evolution owners & managers must be aware of nancial capacity, liability exposure, and required skill set the need to raise capital plays an important role in decision making process. Source of funds (fp: funds from operations current-year operating pro ts: excess dollars that an organization has generated & have at their disposal.

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