Forms of Ownership for International Ventures

There are three main types of ownerships for new ventures: Sole Proprietorship Partnership Corporation

Sole Proprietorship The simplest form of business ownership. There is only one owner and this person is entitled to all profits and responsible for all liabilities. The owner is responsible for all debts, contracts, leases, or other legal obligations.

Sole Proprietorship Some people choose this option of ownership because losses incurred during the first few years of operation can be regarded as counting towards their income tax. The person can deduct the loses and receiving a tax refund that can be put toward the business.

Sole Proprietorship Advantages Disadvantages Quick, easy, and inexpensive to establish Limited in terms of employee compensation plans Only requires registration and appropriate licenses All business income is taxable Owner makes all decisions Profits are taxed at a higher rate than an incorporated organization Owner includes all business profits/losses with personal income Harder to raise capital than a partnership or a corporation

Partnership An agreement between two or more people to work together to achieve the objectives of a business venture. Partners share profits and losses according to the percentages laid out in the partnership agreement.

Partnership Each partner contributes something toward the partnership: Start-up money Material resources Talent Skill Experience Knowledge Business contacts

Partnership There are two types of partnerships: General Partnership Limited Partnership

Partnership General Partnership: The profits or losses are divided by the percentage of interest or ownership in the venture. However, all debts and obligations, regardless of whose responsibility they were, are still the responsibility of each partner. Example: In the event of a bankruptcy, if a partner does not have enough assets to cover their share of the losses creditors can file claims on the other partners.

Partnership Limited Partnership Liability is limited to the amount the partner invested in the venture.

Partnership Advantages Disadvantages Quick, easy, and inexpensive to establish General partners assume unlimited liability for all debts/obligations incurred by the partnership Each partner may deduct business losses Both business and personal income are taxed Favourable for start-up losses Unless otherwise stated in the partnership agreement, the partnership dissolves if one partner dies. Combine the talents and resources of more than one person Profits may be taxed at a higher rate than incorporated organizations Decisions can become difficult to make if there are opposite views of the direction of the business.

Corporation or Limited Company A corporation or limited company is a legal entity created by law and established by corporate charter. Just like a person, a corporation can enter into agreements, own property, hold contracts, be sued, and incur debts.

Corporation or Limited Company A corporation is called a “limited company” because the liability is shared amongst all the shareholders or owners based on the amount they invested. Corporations are run by a Board of Directors. The Board of Directors appoints a President and executive.

Corporation or Limited Company A corporation raises money for business activities through the sale of stock to individuals and organizations that wish to be part owners of the corporation. A stock certificate is a document that represents ownership in a corporation.

Corporation or Limited Company In a corporation, personal assets of shareholders can’t be claimed to cover debts or obligations. Likewise, shareholders can’t deduct losses that the business might incur.

Corporation or Limited Company Advantages Disadvantages Corporations have an unlimited life More costly to set up than other forms of ownership Ownership is easily transferred Requires formal annual activities ( i.e. annual reports, meetings etc.) Profits can be removed as dividends, this is tax benefit for the owner. Losses by the owner can not be used to offset personal income. Corporations can arrange for employee benefits. Business losses incurred during the start-up period can be deducted only against future profits Personal liability of the owner is limited Personal assets can still be seized if used to obtain a business loan.