BA250 Chapter 3 Powerpoint

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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

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Chapter 3Chapter 3

Forms of Forms of Ownership Ownership

of Small of Small BusinessBusiness

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McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights Reserved

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Forms OfBusiness Ownership

Primary Legal FormsPrimary Legal Forms

Advantages & Disadvantages Advantages & Disadvantages Of Each FormOf Each Form

Other Legal FormsOther Legal Forms

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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

Right Legal Form:Right Legal Form:Business Factors To ConsiderBusiness Factors To Consider

Future SizeFuture Size NatureNature Desired ControlDesired Control Legal VulnerabilityLegal Vulnerability Tax ImplicationsTax Implications Expected Profit (Loss)Expected Profit (Loss) Re-investmentRe-investment Personal Cash NeedsPersonal Cash Needs

PhotoLink/Getty Images

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RelativeRelativePositions Of Legal FormsPositions Of Legal Forms

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Legal Form By IndustryLegal Form By Industry

0%

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80%

Services Trade Construction Finance/Ins. &Real Estate

Manufacturing

Proprietorship Partnership Corporation

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Legal FormLegal FormBy Industry’s ReceiptsBy Industry’s Receipts

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Services Trade Construction Finance/Ins. &Real Estate

Manufacturing

Proprietorship Partnership Corporation

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ProprietorshipProprietorshipAdvantages/DisadvantagesAdvantages/Disadvantages

Insert Insert Figure 3.2Figure 3.2

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Partial List Of FederalPartial List Of FederalTax Forms: Sole ProprietorshipTax Forms: Sole Proprietorship

Form 1040: Form 1040: IndividualIndividual Income Tax Income Tax ReturnReturn

Schedule C: Schedule C: BusinessBusiness Profit (Loss) Profit (Loss) Schedule SE: Self-Employment TaxSchedule SE: Self-Employment Tax Form 1040EZ: Estimated Tax For Form 1040EZ: Estimated Tax For

IndividualsIndividuals Form 4562: Depreciation & AmortizationForm 4562: Depreciation & Amortization Form 8829: Expenses For Business Use Form 8829: Expenses For Business Use

Of Your HomeOf Your Home Employment Tax Forms Employment Tax Forms

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Schedule CSchedule C

FrontFront

BackBack

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PartnershipPartnershipAdvantages/DisadvantagesAdvantages/Disadvantages

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Operation ofOperation ofGeneral PartnershipGeneral Partnership

Uniform Partnership ActUniform Partnership Act Partners Responsible Partners Responsible

For Other Partners’ For Other Partners’ ActionsActions

Liability:Liability: Personal Property At RiskPersonal Property At Risk All Debts Of FirmAll Debts Of Firm

Resolve Disputes Resolve Disputes Among Partners(?)Among Partners(?)

S. Wanke/PhotoLink/Getty Images

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Types Of PartnershipsTypes Of Partnerships

GeneralPartner

GeneralGeneralPartnerPartner

GeneralGeneralPartnerPartner

Partners Liable For Partners Liable For Each Others’ ActionsEach Others’ Actions

GeneralGeneralPartnerPartner

LimitedLimitedPartnerPartner

LimitedLimitedPartnerPartner

LimitedLimitedPartnerPartner

Manage With Manage With Unlimited LiabilityUnlimited Liability

Liability = Capital Liability = Capital ContributionContribution

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Partnership:Partnership:Legal/Tax DocumentsLegal/Tax Documents

Articles of Co-PartnershipArticles of Co-PartnershipTax FormsTax Forms

o Form 1065 K-1: Partner’s Share Of Form 1065 K-1: Partner’s Share Of Income, Credit, DeductionsIncome, Credit, Deductions

o Form 4562: DepreciationForm 4562: Depreciation

o Form 1040: Individual Income Tax ReturnForm 1040: Individual Income Tax Return

o Schedule E: Supplemental Income & LossSchedule E: Supplemental Income & Loss

o Schedule SE: Self-Employment TaxSchedule SE: Self-Employment Tax

o Form 1040-ES: Estimated Tax For IndividualForm 1040-ES: Estimated Tax For Individual

o Employment Tax FormsEmployment Tax Forms

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Form 1065 K-1 (Pages 1 & 2)Form 1065 K-1 (Pages 1 & 2)

FrontFront

BackBack

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Form 1065 K-1 (Pages 3 & 4)Form 1065 K-1 (Pages 3 & 4)

FrontFront

BackBack

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CorporationCorporationAdvantages/DisadvantagesAdvantages/Disadvantages

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Form 1120AForm 1120A

FrontFront

BackBack

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Form 1120 (Pages 1 & 2)Form 1120 (Pages 1 & 2)

FrontFront

BackBack

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Form 1120 (Page 3 & 4)Form 1120 (Page 3 & 4)

FrontFront

BackBack

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Formation Of CorporationFormation Of Corporation

Articles Of Incorporation- Articles Of Incorporation- Filed With StateFiled With State

Corporate Charter- Corporate Charter- Comes From StateComes From State

Buy-Sell Agreement- Buy-Sell Agreement- Include In Articles Of Include In Articles Of IncorporationIncorporation

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Corporate GovernanceCorporate Governance

StockholdersStockholders

Board Of Board Of DirectorsDirectors

Corporate Corporate OfficersOfficers

ElectsElects

AppointsAppoints

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S CorporationS CorporationExempt From Multiple TaxationExempt From Multiple TaxationLess Than 100 StockholdersLess Than 100 StockholdersOne Stock Class- CommonOne Stock Class- CommonNo Corporations Or No Corporations Or

Partnerships Can Be Partnerships Can Be StockholdersStockholders

Stockholders = U.S. Citizens Stockholders = U.S. Citizens Or Permanent Residents Or Permanent Residents

Early 1990s Lost Appeal Early 1990s Lost Appeal Because Of Tax Law ChangeBecause Of Tax Law Change

TAXES

Royalty-Free/CORBIS

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Partial List Of FederalPartial List Of FederalTax Forms: S CorporationTax Forms: S Corporation

Form 1120S: Income Tax Return For S Form 1120S: Income Tax Return For S CorporationCorporation

Form 1120S K-1: Shareholder’s Form 1120S K-1: Shareholder’s Share Of Income, Credit, Share Of Income, Credit, Deductions Deductions

Form 4625: DepreciationForm 4625: DepreciationEmployment Tax Forms Employment Tax Forms Form 1040: Individual Tax ReturnForm 1040: Individual Tax ReturnSchedule E: Supplemental Income Schedule E: Supplemental Income

(Loss)(Loss)Schedule SE: Self-Employment TaxSchedule SE: Self-Employment TaxFrom 1040ES: Estimated Tax For From 1040ES: Estimated Tax For

IndividualsIndividualsOther Forms Other Forms

Royalty-Free/CORBIS

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Form 1120S (Page 1 & 2)Form 1120S (Page 1 & 2)

FrontFront

BackBack

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Form 1120S (Page 3)Form 1120S (Page 3)

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LimitedLimitedLiability CompaniesLiability Companies

Since 1977Since 1977Benefits:Benefits:

Limited LiabilityLimited LiabilityTaxed As PartnershipTaxed As Partnership

Similar To S CorporationSimilar To S CorporationOwners = MembersOwners = MembersLifespan- Determined At Lifespan- Determined At

OrganizationOrganization

Emma Lee/Life File/Getty Images

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Other LegalOther LegalForms Of OwnershipForms Of Ownership

Limited Liability PartnershipLimited Liability Partnershipo Protects Individual PartnersProtects Individual Partnerso Not Recognized By Every StateNot Recognized By Every State

Family Limited Liability Family Limited Liability PartnershipPartnershipo Partners RelatedPartners Relatedo Agriculture/Family FarmsAgriculture/Family Farms

Professional Service CorporationProfessional Service Corporationo Provides Licensed Professional ServicesProvides Licensed Professional Serviceso Doctors, Lawyers, & AccountantsDoctors, Lawyers, & Accountants

F. Schussler/PhotoLink/Getty Images

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Nonprofit CorporationsNonprofit CorporationsCivic, Charitable, Educational, Civic, Charitable, Educational,

ReligiousReligiousTax ExemptTax Exempt

CooperativeCooperativeIndependent ProducersIndependent ProducersBuys/Sells For ClientsBuys/Sells For Clients

Joint VentureJoint VentureFractional OwnershipFractional Ownership

Other LegalOther LegalForms Of Ownership (cont’d)Forms Of Ownership (cont’d)

Royalty-Free/CORBIS

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Checklist ForChecklist ForLegal Form EvaluationLegal Form Evaluation