Law for Business
Mr. Bernstein
Business Organizations,
pp 489-512 and 529-535
December 2-4, 2014
Law for Business
Mr. Bernstein
Sole Proprietorships
A business that is owned and operated by one person
76% of businesses in the US are sole proprietorships
Why?
Easiest to create
Owners receives all profits, controls all decisions
The least regulated form of ownership
No double taxation
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Law for Business
Mr. Bernstein
Sole Proprietorships
Disadvantages:
Unlimited liability
Reliant on one person
Raising capital can be difficult
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Law for Business
Mr. Bernstein
Partnerships
Most common form of ownership other than sole
proprietorship
Why?
Partners compensate for the weaknesses of the other
Easier to raise capital than sole proprietorship
Can expand customer base
Partnerships can face difficulties if responsibilities are not
clearly outlined, or if interests of a partner change
Partnerships must have agreements which clearly outline
responsibilities and benefits
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Law for Business
Mr. Bernstein
General vs. Limited Partners
General Partners have unlimited liability and full
responsibility for running the business
Any General Partner can enter fully binding contracts on
behalf of the partnership
All Partnerships must have at least one general partner
Limited Partners have a defined liability (ie in $$$) and
do not participate in business decisions (“silent
partner”)
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Law for Business
Mr. Bernstein
General vs. Limited Partners
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Law for Business
Mr. Bernstein
Corporations
Businesses registered with state government which
operate apart from their owners
An “artificial person in the eyes of the law”
Slices of ownership are called shares of stock
Shareholders are the owners
Corporations must have Board of Directors, who
selects managers to run the company
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Law for Business
Mr. Bernstein
Corporations
Shareholders have limited liability
Corporations have perpetual existence – they do not die
Transfer of ownership is easy
Raising capital can be easier
Corporations can deduct contributions to health and retirement funds
Corporations are more costly to set up
The corporation is taxed and the owners are also taxed on any dividends
or capital gains: “Double Taxation”
Corporate tax rate may be different from individual rates
What is tax rate for NJ corporation? For an individual entrepreneur
earning $50,000/year in profits? What is the Federal tax for each?
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Law for Business
Mr. Bernstein
Other Types of Corporations
Subchapter S Corporations - taxed like partnerships – no
double taxation, with taxes at owner’s personal rate,
limit of 75 shareholders and one class of stock
Nonprofit Corporation – cannot distribute profits
Examples of Nonprofits?
Limited Liability Companies (LLCs) – Offers limited
liability without double taxation as profits are passed
through to the individual owners, no limit on number
of shareholders and allows foreign shareholders
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