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Forms of Business Ownership and Buying an Existing Business - Coggle…
Forms of Business Ownership and Buying an Existing Business
Choosing a form of ownership
No one "best" form of ownership
Understanding characteristics of each form of ownership and how well they match an entrepreneur's business and personal circumstances.
Best form of ownership depends on an entrepreneur's particular situation
Factors affecting the choice
Tax considerations
amount of net income an entrepreneur expect to generate, and tax bill the owner pay are important factor.
Managerial ability
Entrepreneur must assess their skills and abilities to manage a business effectively.
Business goals
How big and how profitable an entrepreneur plans for the business to become influences to form of ownership choose.
Management succession plans
Business owner must look ahead to the day when they will pass their companies on the next generation or to a buyer.
Advantages of sole proprietorship
Simple to create
Obtain license from state/country, or local government and begins operation.
Least costly from to begin
Least expensive since no need to create and file legal documents such as EPF, SOCSO
Total decision making authority
The freedom of fast, flexible decisions.
Easy to discontinue
Can terminate the business quickly, even though he or she will still be personally liable for outstanding debts.
Disadvantage of sole proprietorship
Limited skills and capabilities
Many business failures occur because lack the skills, knowledge, and experience in areas that are vital to business success.
Lack of continuity of the business
If the proprietor dies, retires, or become incapacitated, the business automatically terminates.
Limited access to capital
Proprietors difficult to raise additional money and maintain sole proprietors.
Advantages of partnership
Easy to establish
Inexpensive. Obtain necessary business licenses and submit minimal numbers of forms.
Division of profits
The partnership agreement should articulate each partner’s contribution to the business and his or her share of profits.
Complementary skills of partners
In successful partnership, the parties’ skill and ability complement one another. Strengthening the companies’ managerial foundation
Types of partners
General Partners
Take an active role in managing a business.
Limited Partners
Cannot participate in the day-to-day management of a company
Silent Partners
Not active in a business but are generally known to be members of the partnership
Dormant Partners
Neither active nor generally known to be associated with the business
Disadvantages of partnership
Potential for personality and authority conflicts
Making sure that the partners’ work habits, goals, ethics and general philosophy are compatible
Unlimited liability of at least one partner
The general partner has unlimited personal liability for any debts remain after the partnership assets exhausted.
Capital accumulation
It is not as effective as the corporate form of ownership, which can raise capital by selling shares of ownership to outside investors.
Standard partnership agreement
Location of the business
Purpose of the business
Duration of the partnership
Name of the partnership
Names of the partners and their legal addresses.
Advantages of C Corporation
Ability to attract capital
A corporation can raise money to begin business and expand by selling shares of its stock to investors.
Private placement:
A fund raising tool in which a company sell shares of its stock to a limited number of private investors.
Limited liability of stockholders
Creditors of the corporation cannot lay claim to shareholders’ personal assets to satisfy the company’s unpaid debts
Disadvantages of C Corporation
Cost and time involved in the incorporation process
Traditional form of incorporation
Double taxation
Limited Liability Company (LLC)
Articles of organization
creates an LLC by establishing its name and address, method of management, its duration, etc
Operating agreement
establishes for an LLC the provisions governing the way it will conduct business.