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What is a Company
Company – A business or association usually formed to manufacture or supply products or service for profit. Can be:▪ Partnership▪ Limited Liability Partnership (LLP)▪ Corporation▪ Sole Proprietor
Partnership
In a partnership – Partners share the profits or losses of the business in which they have invested
Personally liable for company debt Your assets (things that you own) will
cover the company debt
Limited liability Partnership
Transfers much of the firm’s personal liability from the partners to the partnership
Public Corporation
Is a company with publicly traded shares that anyone can buy in a stock market.
Is also legally separated from the stockholders (people that own the stock) and the managers that run it
Stock holders own the company
Corporation Advantages
Stockholders are not responsible for the company’s debt
A corporation continues to exist even if the stockholders or managers change
Stockholders can easily sell their ownership shares through the stock market
Private Corporation
May be owned by an individual Or privately sell stocks to fund the
business Stocks are not sold publicly on the
stock market
Sole Proprietor
Company is owned and run by one individual who receives all of its profits and bear all of its losses.
Owner is personally liable for all of the companies debt
Stocks
Initial Public Offering – IPO Initial sale of stock to the public by
investment bankersUnderwriter – Investment banker
that buys an entire new securities issue from a company and resells it
Stock Exchanges
3 Major stock markets1. NYSE – New York Stock Exchange2. NASDAQ – National Association of
Securities Dealer Automated Quotation3. AMEX- American Stock Exchange
Common Stock
Shares of the company do not guarantee a dividend (Part of the companies profit that are shared with the stockholder)
Dividend may be more then preferred stock holders
Right to vote for Board of Directors Right to vote at Annual Meeting
Stock Terms
Earnings – The amount of money that remains after subtracting the companies expenses from its revenue
Investor – Someone who risks funds with the hope of it increasing in value
Corporations
Registered by a state and operates apart from its owners
Three Types1. C-Corporation2. S-Corporation3. Non-Profit Corporation
C-Corporation
Pays taxes on earnings Shareholders pay taxes as well File Certificate of Incorporation with
the state Issue stocks
Shareholders – Owners of Corporation Required to have a Board of
Directors
C-Corporation
Advantages Status – Corporations get help getting
loans Limited Liability – Only liable up to the
amount of their individual investment Perpetual Existence – Continuous life Owners can create pension and
retirement funds and offer profit sharing Tax Advantage – Deduct certain expenses
from their reported income (Salaries and Contribution to benefit plans)
C-Corporation
Disadvantages Expensive to start up – Cost $500 to
$2500 to create Taxed – Corporations income is heavily
taxed▪ Corporation pay tax on profits▪ Shareholders pay tax on dividends
Subchapter S Corporation
Taxed like a partnership Avoids double taxation
Advantage Profits taxed only once at shareholders
personal tax rate S Corp is not a taxpaying entity
Subchapter S Corporation
Disadvantage Can have no more than 75 stockholders
who must be US citizens Only have one class of stock Cash businesses are S Corps▪ If business produces enough cash, the form
works▪ If business shows a large taxable profit but
has not generated enough cash to cover the taxes, the owners must pay out of their earnings
Nonprofit Corporation
Businesses that benefit certain causes in the community
Make money for reasons other than the owner’s profit
Business can make profit, however, the profit must remain within the company and not be distributed to shareholders
Limited Liability Company
Benefits Simpler to start up than a corporation Allows for flexibility of a partnership
structure Protects it owners with the limited
liability of a corporation Not subject to double taxation Not limited on the number of members
or their status
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