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11/29 notes

I. Sole proprietorship
a. Pros
i. Keep all the money
ii. You’re taxed normally
b. Cons
i. You have full liability
ii. Hard to raise capital
iii. Life of business limited to life of proprietor
II. Partnership
a. Pros
i. Easy to form
ii. No written agreement
iii. Income taxed personally
iv. Losses deducted personally
b. Cons
i. Personal liability
ii. Ends when partner dies
III. General partnership
a. Divide profits equally
b. Personal liability
IV. Limited Partnership
a. General partner personally liable
b. Limited partners liable only for investment
i. Not liable
ii. No control over business
V. Limited Liability LLC
a. Pros
i. Limited liability
ii. Flexible
iii. Members can mange
iv. Taxed as partnership
v. Don’t need to be us citizen
vi. Can elect to be taxed as corp
b. Cons
i. You’re a resident of your partner’s state
1. Cant get diversity of citizenship
ii. Access to federal courts limited
iii. Formalities in forming
VI. Franchise
a. Pros
i. Increased earnings
ii. Low risk
b. Cons
i. Little control
ii. Liability
VII. Other business types
a. Cooperative – different people combine their resources and they
might get some benefit out of it (rural between farms)
i. (REI) is a cooperative
b. Joint Venture
i. 2+ people in corporations (basically a partnership) for a
specific things
ii. Lifetime and its going to come to an end
c. Syndicate
VIII. Corporations
a. Shareholders buy shares
b. Shareholders elect board of directors
c. Board hires officers to run business
d. You can be a separate legal entity
e. Shareholders do not manage the company they are just investors
f. Legal person – liable for torts and crimes
g. Limited liability
h. Can transfer shares
i. Perpetual existence
j. Pros
i. Owner has limited liability
ii. Perpetual
k. Cons
i. Double taxation
ii. Formal requirement to form
IX. Types of corps
a. Public Corporations – government
i. Administers law
b. Private corp
i. Created by private people
c. For profit company
i. $
d. Non profit
i. Providing services for members
ii. Hospitals
iii. Churches
iv. Schools
v. Battelle
vi. Put the money back into the company
vii. Can earn money but they don’t distribute it
e. Domestic
i. Operate in state you have business
f. Foreign
i. Incorporated in another state
g. Alien
i. Diff country
h. Publicly held
i. Anyone can buy/sell on exchange
i. Closely held (we have more of these)
i. Private
ii. Do not offer stock to public
iii. Shares held by family and friends
iv. Shareholders active in management
v. Restricted sale of shares – buy/sell management
vi. Life insurance
vii. Subchapter S corporation – blend of corp and partnership
1. Pros
a. Limited liability
b. Taxed like partnership
2. Cons
a. Shareholders cant be nonresident alien
b. Cant have more than 100 shareholders
X. Forming corporation
a. Select state (Delaware is most pop, WVA is least pop)
b. Reserve name (do it in every state)
c. File articles of incorp.
d. Elect board
e. Adopt bylaws (for profit and non profit)
i. Code of regulations
XI. Defective Incorporation
a. De jure – minor errors
b. De facto – major errors, if you made good faith attempt you’ll be okay
(for ex you forgot to file articles of corporation)
c. Piercing corporate veil
i. Bad shareholders start corporations to hide something or do
something illegal
ii. Can hold shareholders personally liable
XII. Debt security
a. Loan
XIII. Equity securities
a. Preferred stock
i. Preference for assets
ii. May not vote
b. Common stock
i. Get to vote
ii. Lowest priority