Law for Business Mr. Bernstein Business Organizations, pp and December 2-4, 2014

Law for Business Mr. Bernstein Sole Proprietorships A business that is owned and operated by one person 76% of businesses in the US are sole proprietorships Why? Easiest to create Owners receives all profits, controls all decisions The least regulated form of ownership No double taxation 2

Law for Business Mr. Bernstein Sole Proprietorships Disadvantages: Unlimited liability Reliant on one person Raising capital can be difficult 3

Law for Business Mr. Bernstein Partnerships Most common form of ownership other than sole proprietorship Why? Partners compensate for the weaknesses of the other Easier to raise capital than sole proprietorship Can expand customer base Partnerships can face difficulties if responsibilities are not clearly outlined, or if interests of a partner change Partnerships must have agreements which clearly outline responsibilities and benefits 4

Law for Business Mr. Bernstein General vs. Limited Partners General Partners have unlimited liability and full responsibility for running the business Any General Partner can enter fully binding contracts on behalf of the partnership All Partnerships must have at least one general partner Limited Partners have a defined liability (ie in $$$) and do not participate in business decisions (“silent partner”) 5

Law for Business Mr. Bernstein General vs. Limited Partners 6

Law for Business Mr. Bernstein Corporations Businesses registered with state government which operate apart from their owners An “artificial person in the eyes of the law” Slices of ownership are called shares of stock Shareholders are the owners Corporations must have Board of Directors, who selects managers to run the company 7

Law for Business Mr. Bernstein Corporations Shareholders have limited liability Corporations have perpetual existence – they do not die Transfer of ownership is easy Raising capital can be easier Corporations can deduct contributions to health and retirement funds Corporations are more costly to set up The corporation is taxed and the owners are also taxed on any dividends or capital gains: “Double Taxation” Corporate tax rate may be different from individual rates What is tax rate for NJ corporation? For an individual entrepreneur earning $50,000/year in profits? What is the Federal tax for each? 8

Law for Business Mr. Bernstein Other Types of Corporations Subchapter S Corporations - taxed like partnerships – no double taxation, with taxes at owner’s personal rate, limit of 75 shareholders and one class of stock Nonprofit Corporation – cannot distribute profits Examples of Nonprofits? Limited Liability Companies (LLCs) – Offers limited liability without double taxation as profits are passed through to the individual owners, no limit on number of shareholders and allows foreign shareholders 9