Which of the following Types of Organizations Have the Entity Legally Separate from Its Owners
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Like a sole proprietorship, a partnership is the standard form of ownership for multi-owned businesses – there is no need to register an open partnership with the state. The transfer of ownership of a company is simple: shareholders simply sell their shares to others. However, some founders want to limit the transferability of their shares and therefore choose to operate as a private company. The shares of these companies are held only by a few people who are not allowed to sell them to the public. Another approach to growth is to merge or acquire another company. The reason for growth through merger or acquisition is that 1 + 1 = 3: The combined company is more valuable than the sum of the two separate companies. This justification is attractive to companies facing competitive pressure. In order to capture a larger market share and improve profitability, companies will want to become more profitable by merging with other companies. Business Benefits: • The shareholders of the company have limited liability, which means that the company is responsible for all liabilities incurred by the company. • Generally favorable training for investors.
There are three types of companies: company C, company S and limited liability company. In 1977, Wyoming became the first state to allow companies to operate as limited liability companies. Twenty years later, in 1997, Hawaii was the last state to accept the new form of organization. Since then, the limited liability company has grown in popularity. Its rapid growth has been spurred in part by changes to state regulations that allow a limited liability company to have only one member. The trend towards LLCs can be seen by reading the names of companies on the side of trucks or on storefronts in your city. It`s common to see names like Jim Evans Tree Care, LLC and For-Cats-Only Veterinary Clinic, LLC. However, LLCs are not limited to small businesses. Companies like Crayola, Domino`s Pizza, Ritz-Carlton Hotel Company, and iSold It (which helps people sell their unwanted items on eBay) operate in the limited organizational form. Overall, you need to consider the following when deciding between the different types of business units: More administrative tasks – required by law to inform annual meetings, shareholders of the meeting, must keep and submit minutes of meetings A company may have a single shareholder or several. In listed companies, there are often thousands of shareholders. Companies are incorporated and regulated by the company laws of their country of residence.
Disadvantages of companies: • The process of starting the business is stricter and more expensive. • Profits are subject to “double taxation”, which means that profits are taxed at the company level and at the individual level when distributed to shareholders. • High level of governance and oversight by the Board of Directors. U.S. state governments recognize more than a dozen different types of businesses, but the average small business owner chooses between these six: sole proprietorship, partnership, limited partnership, limited liability company, C corporation, and S corporation. Incorporation also allows companies to raise funds through the sale of shares. This is a great advantage because a company is growing and needs more funds to work and compete. Depending on its size and financial strength, the company also has an advantage over other forms of business when it comes to taking out bank loans. An established business can borrow its own funds, but when a small business needs a loan, the bank usually requires it to be guaranteed by its owners. For many people, however, sole proprietorship is not suitable. The flip side of complete control is providing all the different talents that may be needed for the company`s success. And when you`re gone, the company dissolves.
You also have to rely on your own funds for financing: in fact, you are the company and all the money borrowed from the company is loaned to you personally. Most importantly, the sole proprietor has unlimited liability for business losses. The principle of unlimited personal liability means that if the business goes into debt or suffers a loss (for example, due to an injury to someone), the owner is personally liable. As a sole proprietor, you risk your personal assets (your bank account, your car, maybe even your home) for your business. You can reduce your risk with insurance, but your liability risk can still be significant. Since Ben and Jerry decided to start their ice cream business together (and therefore the business wasn`t owned by one person), they couldn`t start their business as a sole proprietorship. Incorporation: Corporations are more complex entities to create, have more legal and accounting requirements, and are more complex to operate than sole proprietorships, partnerships, or LLCs. One of the main disadvantages of a company is the high level of governance and oversight by the board of directors. Often, this prolongs decision-making when multiple shareholders or investors are involved. As you can see, sole proprietorships and primary care physicians have little liability protection, so they expose you to greater legal risk if someone sues your business. But taxation is easy if you have a sole proprietorship or primary care doctor and don`t have to comply with as many state regulations. That means more time to do what you love – run your business.
Unlike a partnership, a limited partnership or LP is a registered business entity. Therefore, to form a limited partnership, you need to submit documents to the state. In a limited partnership, there are two types of partners: those who own, operate and hold the business responsible for the business (general partners) and those who act solely as investors (limited partners, sometimes called “silent partners”). No corporate taxation and no double taxation: An S Corp is a flow-through entity, so the government taxes it in the same way as a sole proprietorship or partnership. A type of business entity owned and managed by a person – there is no legal distinction between the owner and the business. Sole proprietorships are the most common form of legal structure for small businesses. Which business unit is right for you? This guide is designed to help you make that decision. We explain the types of business units and the pros and cons of each business so you have all the information you need to determine what`s best for your business. Liability: A corporation is an “immortal” legal entity, meaning it does not end with the death of the shareholder.
The shareholders of the company have limited liability because they are not personally liable for the debts and obligations of the company. Shareholders cannot lose more money than the amount they have invested in the company. Like the provisions of an LLC, shareholders must be careful not to “penetrate the corporate veil.” Personal checking accounts should not be used for business purposes and the company name should always be used when interacting with customers. About the author: Priyanka Prakash is an author specializing in finance, lending, law, and insurance for small businesses, helping business owners navigate complex concepts and decisions. Since earning a law degree from the University of Washington, Priyanka has spent half a decade writing about the financial and legal concerns of small businesses. On the other hand, if your business operates in a more controversial industry, such as hospitality, childcare, or professional services, that`s a good reason to start an LLC or business right away. And regardless of the industry, if your business is growing and more dollars are at stake, now may be the perfect time to “graduate” from an LLC or corporation. What works for a freelancer or hobbyist probably won`t work for someone trying to hire employees, attract additional owners, or grow. However, what if a company wants to acquire another business, but that business does not want to be acquired? The result could be a hostile takeover – an act of takeover that the target`s management and board of directors oppose. Ben Cohen and Jerry Greenfield found themselves in one of these situations: Unilever – a very large Dutch-British company that owns three brands of ice cream – wanted to buy Ben & Jerry`s against the founders` wishes. Most of Ben & Jerry`s shareholders sided with Unilever. They had little confidence in the ability of Ben Cohen and Jerry Greenfield to continue running the company and were frustrated with the company`s social focus.
Shareholders liked Unilever`s offer to buy their Ben & Jerry`s shares at nearly double the current market price and wanted to take their profits. In the end, Unilever won; Ben & Jerry`s was acquired by Unilever in a hostile takeover.16 Despite fears that the company`s social mission would end, this did not happen. While neither Ben Cohen nor Jerry Greenfield are involved in the current management of the company, they have returned to their roots in social activism and are heavily involved in many company-sponsored social initiatives. The headline read, “Searched: Over 2,000 in Google Hiring Spree.” 9 The world`s largest web search engine has announced plans to grow internally and increase its workforce by more than 2,000 people, with half of its hires coming from the U.S. and the other half from other countries. The additional employees will help the company expand into new markets and attract global talent to the highly competitive sector of Internet information providers.