Types of Legal Entities in the United States
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Ownership Reporting DisclosureandOversight
Ways ofRaising Cash
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2005 # of Firms % Firms
Total Revenue
(000)
%
Revenue
Average
Sales
All Corporations 3,324,260 16% $21,857,896,027 83.60% $6,575,267
C-Corporations 1,048,758 5% $17,435,464,986 66.70% $16,624,870
S-Corporations 2,275,502 11% $4,422,431,041 16.90% $1,943,497
Sole
Proprietorships 15,750,475 76% $1,047,830,449 4.00% $66,527
Partnerships 1,623,202 8% $3,247,021,603 12.40% $2,000,380
Total 20,697,937 100% $26,152,748,079
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Type of Entity Who owns
the
company?
Who
manages
(runs) the
company?
To whom
do the
managers
of the
company
report?
How is the entity
formed?
How long can
the company
exist?
Who pays taxes? Who is responsible if
there is debt or the
company does
something wrong and
is sued?
How and where
can the company
raise money?
CorporationStock-holders
Executives Board ofDirectors(must haveoutsidedirectors)
File Articles ofIncorporationwith theSecretary ofState in a specificstate.
It can last forever
Corporation (onprofits)
Shareholders (ondividends received)
The corporation -owners can protecttheir personal assets
Sell more shareson the publicexchanges or selldebt by issuingbonds. They alsoutilize bankfinancing.
S-
Corporation
Stock-holders
not morethan 100
Executives Board ofDirectors
1. Form acorporation in the
state of yourchoice.2. Obtain theformal consent ofthe corporation'sshareholders.3. File a formwith the IRSelecting this formof taxation
1. S-Corporations donot pay taxes as a
corporation.2. Owners report theirshare of profits orlosses in thecompany on theirpersonal tax returns.
The corporation owners can protect
their personal assets
Sell stock. Theyalso utilize bank
financing.
LLC LimitedLiability
Company
Owners arecalledMembers
Members Themselves File Articles ofIncorporationwith theSecretary ofState in a specificstate.
30 years(depending onthe state)
1. LLCs do not paytaxes as a company.
2. The income of theLLC is taxed to themembers on theirpersonal tax returns,according to thepercentage of theirinterest in thecompany.
The corporation Themembers personalliability is limited tothe amount invested inthe LLC
They do not havestock, so theymust rely on bankfinancing orreinvestingprofits.
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Type ofEntity
Whoowns thecompany?
Whomanages(runs) thecompany?
To whomdo themanagersof thecompanyreport?
How is theentity formed?
How long canthe companyexist?
Who pays taxes? Who isresponsible ifthere is debt orthe company doessomething wrongand is sued?
How andwhere can thecompany raisemoney?
GeneralPartnership
Thepartners
The partners No one butthemselves
Two or morepersons decide toconduct abusiness or trade.A verbalagreementbetween thepartners isenough. Thereare no filing orregistration
requirements.
As long as all thepartners are aliveand want thebusiness tocontinue
Profits (or losses)are distributed to thepartners in the samepercentage as eachpartners share(ownership) in thepartnership.
The partners payregular income taxand can also deduct
losses from theirother income.
Partnership debt andother liabilities are theresponsibility of thepartners and extend totheir personal assets
Partners mayinvest more oftheir personalmoney, theyobtain bankfinancing, andreinvest theprofits.
LimitedPartnership
All Partners
(The
partnershipis limited to35members.)
Only theGeneralPartners
(If the limitedpartner getsinvolved inmanagement,they risklosing theirliabilityprotection.)
The GeneralPartners
As long as all theGeneral Partnersare alive and want
the business tocontinue
Profits (or losses)are distributed to thepartners in the same
percentage as eachpartners share(ownership) in thepartnership.
The partners payregular income taxand can also deductlosses from theirother income.
Limited partners arenot liable forpartnership debt and
only their investmentis at risk.
Partners mayinvest more oftheir personal
money, theyobtain bankfinancing, andreinvest theprofits.
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Franchisor
Franchisee
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OTHER TYPES OFBUSINESS ORGANIZATION
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Novartis and Bayer Schering AG
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OTHER BUSINESSVOCABULARY
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management buyout
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Merger
Takeover/Acquisition
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Merger
Takeover/Acquisition
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Friendly bid
Hostile Bid
White Knight
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Poison Pill
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