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Chapter 5

Chapter 5. Selecting a Form of Business Ownership. Learning Objectives. Existing Firms. Sole Proprietor. Selecting a Form of Business Ownership. Risk & Return. Partnership. Corporation. Insert Chart from page 159. Selecting a Form. Unlimited liability ( 无限责任）

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Chapter 5

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  1. Chapter 5 Selecting a Form of Business Ownership

  2. Learning Objectives Existing Firms Sole Proprietor Selecting a Form ofBusinessOwnership Risk & Return Partnership Corporation

  3. Insert Chart from page 159 Selecting a Form

  4. Unlimited liability (无限责任） ------the responsibility of business owners for all the debts of the business. Limited liability (有限责任） ----- the responsibility of a business owners for losses only up to the amount they invest.

  5. A person invested $20,000 to a business. One year later, due to unsuccessful management, the debts amount to $30,000. If he declares bankruptcy, how much does he need to pay?

  6. Sole Proprietorship 70% of allBusinesses 6%Profit Single Owner

  7. - Earnings - Easy Organization - Control - Low Taxes - Losses - Unlimited Liability - Limited Funds - Limited Skills Sole Proprietorships（个体工商户） Advantages Disadvantages

  8. Partnership（合伙企业） General Partnership Limited Partnership General Partners Limited Partners

  9. - Additional Funds - Shared Losses - Specialization - Shared Control - Unlimited Liability - Shared Profits Partnerships(合伙企业） Advantages Disadvantages

  10. Corporations（公司）

  11. The difference between corporation and company 1. Corporation (American English) company (British English) 2. Corporation only mean incorporated organization; while company can mean both incorporated and unincorporated organization. Corporation (公司）

  12. Company Law (British English) Corporate Law (American English) Corporation Law ( 比较少见，但也有） 公司法

  13. A corporation is a legal entity, which is an artificial being that exists only in the eyes of the law. It can be owned by one person or many persons. all the owners have limited liabilities. Legal entity （法人）

  14. How Owners Affect Management

  15. Stockholder Returns Dividends Stock Price Publicly Held Privately Held

  16. - High Expense - Financial Disclosure - Agency Problems - High Taxes - Limited Liability - Access to Funds - Ownership Transfer Corporations Advantages Disadvantages Capital Gains

  17. Double Taxation

  18. Regular ‘C’ S Corporation Limited Liability Companies Types of Corporations

  19. S-Corporations Limited Liability Personal Tax

  20. 1. Have no more than 75 (or 150, including spouses) shareholders. 2. have shareholders that are individuals or estates and are citizens or permanent residents of the US. 3. have only one class of outstanding stock. 4. not have more than 25% of income derived from passive sources (rents, royalties, interest, etc.). Conditions for Establishing S-Corporation

  21. Limited Liability Company LLC Limited Liability Partnership Benefits

  22. A limited liability company is similar to S corporation but without the special eligibility requirements. LLC

  23. 1. Limited liability 2. choice of taxation 3. flexible ownership rules 4. flexible distribution of profit and losses 5. operating flexibility Advantages of LLC

  24. 1. no stock 2. limited life span (no more than 30 years in some state) 3. fewer incentives 4. LLC members must pay self-employment taxes on profit. S- corporations pay self-employment tax on salary. Disadvantages of LLC

  25. In China there are two kind of 公司 (corporation/company) 有限责任公司 (Limited liability company) (private/closed corporation) 股份公司 ( Joint stock limited company) (public/open corporation) 公司

  26. Difference in starting Difference in the number of shareholders Difference in holding出资证明和股票 Difference in share transferring Difference in publicity of the legal documents Difference in profit distribution 两种公司的区别

  27. Limited liability Pay both enterprise income tax and personal income tax Registration capital no less then 100,000 RMB Unlimited liability Pay personal income tax No restriction of registration capital 一人公司和个人独资企业的区别

  28. Comparing Business Forms No Magic Answer www.sbaonline.sba.gov Can Change

  29. Equity

  30. Owning an Existing Business Family Business Existing Business Franchise

  31. - Proven Style - Name Recognition - Financial Support - Sharing Profits - Less Control Franchise Distributorship Chain Style Advantages Disadvantages

  32. Cost of Fast-Food Franchise

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