Introduction
Far Horizon's owner is contemplating revising the way the business is structured. Currently the business is structure as a Sole Proprietor. Several alternate business structures may provide additional benefits for Far Horizon. One of Far Horizon's goals is to raise additional capital. The potential investors have required a forty-nine percent ownership of the business. In order for the current owner of Far Horizon to retain operating control of the business and to raise capital, four types of business organization merit investigation. Two types of corporations "C" and "S" would provide structure for gaining capital but have substantial documentation requirements. Two types of Partnerships, General and Limited provide the ability to maintain control of the operations of the business but can subject the owner to significant liability. Each of the four options is described in more detail below.
C-Corporation
In a C-Corporation, the shareholders have the protection of limited liability. The Shareholders liability cannot be greater than the amount they have invested in the business.
Dividends from a C-Corporations are taxed twice, once at the corporate level and again on the individual income taxes of the shareholders receiving the dividends.
C Corporations have to ability to change ownership of stocks and add new shareholders relatively easily. C-Corporations can have unlimited numbers of shareholders and different classes of stock. A corporation is a separate legal entity from its shareholders. A corporation has perpetual life, meaning that the corporation will continue to exist regardless of the status of the shareholders of the corporation.
With C-Corporations, the shareholders are separate from management. Shareholders do not take on management responsibilities, and management does not have owner responsibilities.
S-Corporation
In an S-Corporation, the shareholders have the protection of limited liability. The Shareholders liability cannot be greater than the amount they have invested in the business. S-Corporations do not pay taxes on profits and losses at the corporate level. Profits and losses distributed to the shareholders are reported on their individual income taxes.
S Corporations have to ability to change ownership of stocks and add new shareholders relatively easily. An S-Corporation is limited to 100 shareholders. A corporation is a separate legal entity from its shareholders. A corporation has perpetual life, meaning that the corporation will continue to exist regardless of the life or death of the shareholders of the corporation.
With an S-Corporation, shareholders actively engage in management decisions and the daily operations of the business.
Corporations are very involved to create.
...s corporation, and it will probably go through many more transformations in the years to come.
Liability: Investors have limited liability. This protects investors from having litigation brought against them. If the investor is a managing partner, however they then could have their personal assets and property employed to satisfy any debt the S Corp has accrued.
Corporation – “A business organization that exists as a legal entity and provides limited liability to its owners.” (Longenecker, Petty, Palich, Hoy, Pg. 205) The main advantage of a corporation is that the business liability falls onto this entity instead of the individuals that own it. The disadvantages of this organization are found mostly in its formation. A corporation is expensive to create and requires compliance with state
The limited partner only risks what they invested in the business. The downside is if the limited partner becomes active then they could potentially lose personal assets. The S corporation is a more favorable tax option on income. The disadvantage is there is certain requirement that must be met. The LLC is a great option. With this type, the risk is only what is invested unlike sole proprietorship. It is easy to set up, and has tax advantages. The downside is if a corporation wanted to switch to C, it would have to pay additional taxes. I do believe the option they picked is best for them at that time. C has tax advantages. If they started with LLC and later wanted to change, it would cost them. C is a great way to get capital as well.
Limited Liability. When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company.
The Economic Dimension: Do corporations benefit from shareholders limited liability if so how? For example, the company should obtain insurance, and if the company is sued the defendant is not held liable. If someone sues the insurance company is held liable. The law firm argued that court should pierce the business veil, because did not observe corporate formality, and because Brennan brothers did not honor their promises to pay their legal bills. Generally, shareholders are not personally liable for corporate acts.
A corporation is a separate legal entity which is incorporated through the legislative process of going through a registration process. A corporation either operates as a non-profit or profit organization. The corporation has to follow the lawful rights and obligations that are different from the employees and shareholders. Corporations have some good and bad with its formation. The creation of a shield that will protect individuals from legal responsibility and personal liabil...
Section 124 of the Corporations Act 2001 establishes a company as a separate legal entity which has the same characteristics as a natural legal person. Although a corporation lacks of physical existence, it does not prevent the company comply with common law and statute law being liable in relation to tort, crime and contract. It may enter into contract in its own name and can sue or be sued for failing to carry out its contractual obligation and therefore found liable for breaching that contract. As a result, the actions under criminal and civil law is found to be responsible to a corporation.
According to the text book, a corporation is a legal entity which separates the distinctions between owners and managers. A corporation has three main advantages:
While there are a lot of advantages and disadvantages that go along with each kind of business ownership, I think the two options I like most are the LLC, and C-Corp options. LLC stands for, Limited Liability Company and C-Corp stands for, Corporation. The LLC is currently the most realistic option, while the C-Corp is more of a goal. While both of these are different, they both share one HUGE advantage and that is the limited liability that comes with them. Today's world is full of people looking for any reason to sue you. Choosing one of these two options makes the company reliable for any legal issues versus the owner/owners. So in short when they sue, they can only take the LLC's assets, not the owners.
A corporation is started when a sole proprietorship, a one-owner business, that is the most common form of business institution in the US, or a partnership, an association of two or more people in order to run a business, decides that they don't want to be personally responsible for any loss the company might have. (Watson, p211) Or they might decide that they want the company to "live on" after they die, that is for the business to have "unlimited life". Since neither of these goals can be reached with a sole proprietorship, or a partnership, the owner (or owners, as the case may be) decide that he (they) want to "convert" their business to a corporation. The owner(s) file a charter of incorporation from the government to be legally recognized as a corporation. (Boyd, March, 99) The owner(s) then sell shares of stock, documents representing ownership in the corporation, to investors. These investors buy and sell the stock to small investors, or stockholders. Since there is no limit to the number of shareholders to a company, the investors vote (for every share you own you get one vote) on a board of directors. The board of directors are in charge of hiring the people responsible for the every-day running of the corporation. These positions include, but are not limited to: the president, vice president, and other chief administrators. (Watson, p211-212)
... big difference is that variable capital corporations can have unlimited variable capital. There are also limited liability corporations. These corporations are limited to 50 stockholders and require less capital than the previous two corporations.
A corporation under Company law or corporate law is specifically referred to as a "legal person"- as a subject of rights and duties that is capable of owning real property, entering into contracts, and having the ability to sue and be sued in its own name. In other words, a corporation is an artificial person that in most instances is legally treated as a person, and empowered with the attributes to own its own property, execute contracts, as well as ability to sue and be sued. One of the main motivations for forming a corporation or company is the limited liability it offers its shareholders. By this doctrine (limited liability), a shareholder can only lose only what he or she has contributed as shares to the corporate entity and nothing more. The case of Salomon V. Salomon & Co., commonly referred to as the Salomon case, is both the foundational case and precedence for the doctrine of corporate
Sole tradership is when the business is fully owned and managed by one person, though others can be employed to help run the business. As the sole traders only financial income is from the business and/or bank loan, they do not have the resources to expand and cover regional or national areas. These types of businesses are located in the small business sector and usually cover local areas. Such businesses could be hairdressers, corner shops or market stalls etc. Sole traderships have unlimited liability so if the business fails to pay its debts the financial responsibility falls on the owner/s to pay the debts in full even if they have to sell their business, personal possessions and assets.
The owner has the ability to grow or contact its operation at will with no need to consult with a boss or board of directors