Fin571 week 1 business structures – corporate finance presentation
1. Sole Proprietorship: A sole proprietorship is a business owned and operated by a single individual. Advantages of this structure include the ease of set up and operation, as well as the fact that the owner has control over all decisions made within the business. Disadvantages include unlimited personal liability, limited access to capital and potential difficulty in attracting qualified personnel.
2. Partnership: A partnership is a business venture established between two or more individuals who share profits, losses and liabilities amongst themselves. Advantages of forming a partnership include shared costs associated with starting up and running a business, increased capital resources due to multiple owners pooling their funds together, sharing of workloads among partners as well as increased expertise as different partners bring different skills to the table. Disadvantages include disputes that can arise between partners which can affect decision making ability or even cause dissolution if not resolved appropriately, unlimited personal liability for each partner in regards to debts incurred by any other partner(s) and difficulty in bringing new partners into an existing venture without causing disruption to operations or ownership structure/distribution rights.
3. Corporation: A corporation is an independent legal entity owned by shareholders who are not personally liable for its debt or actions taken on its behalf but merely have ownership stakes represented by shares in it’s stock portfolio. Advantages of setting up a corporation include greater access to capital due to size (increased borrowing power), limited liability protection for shareholders (personal assets can’t be used/seized if company goes bankrupt) , perpetual existence regardless of death/departure of founder(s), easier transferability (ownership stakes can be bought/sold easily). Disadvantages include double taxation which results from earnings being taxed both at corporate level then again at shareholder level upon distribution via dividend payments , complex laws governing corporations , costly filing fees associated with registering & maintaining corporate status plus potential conflicts between investors & management team members due to conflicting objectives i e profit maximisation vs growth & sustainability .
4 Limited Liability Company: An LLC is similar to a corporation but offers additional flexibility when it comes distributions (profits distributed according to income earned rather than uniform rate per share) & operational control (LLC’s operating agreements give members greater freedom than would be available under corporate model). Advantages also extend beyond flexibility such as asset protection from creditor claims against individual LLC members , ability for pass-through taxation resulting in no need for double taxation plus less paperwork required compared with corporates . The main downside however arguably lies with lack of portability – forming new branches outside parent state requires creating separate LLC’s thus repeating registration process each time