Chapter 14: Corporate Governance Flashcards
(19 cards)
Size of ownerships
closely held companies - family owned
publicy held companies - public stock exchange
3 basic forms of business organization
Sole proprietorship
Partnership
Corporation
factors in selecting organization form
cost of creation
continuity/stability
control of decisions
owner liability
taxation
sole proprietorship
one individual owns and operates the business, with no legal distinction between the business and the owner.
easiest/cheapest to create
- No fee to file w state
Greater continuity
liability of sole proprietorship
Smaller company - less owed
Owner personally liable
Proprietor solely liable for everything
taxability of sole proprietorship
Flexible tax planning
Not separately taxed, tax liability falls on proprietor
Filed on income line - whether or not collected or voided, must pay income taxes on it
partnerships
Business relationship between 2 or more persons with a common interest
share both p/l
simple creation, each partner has equal voice
continuity - dissolved when ownership changes
liability of partnership
jointly and severally
taxation of partnerships
pass-through entity - business itself doesn’t pay tax
p/l passed through the owner or partners
Corporations
legal structure for conducting business that’s separate from its owners, granting limited liability and allowing for easier capital raising through shares.
expensive to create
liability - limited personally
perpetuity
owned by sharehodlers
Corporate Managerial Control
Shareholders → board of directors → officers → employees
BOD elected
Officers hired by BOD
Can issue voting vs non voting stock
Corporate Taxation
double taxed - to the business and to the shareholders
how to avoid double tax
file subchapter S - hybrid of a corporation
less than 100 shareholders
pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
types of partnerships
general
limited
general partnership
multiple GPs
Made up of all GP with full ownership, and full liability for the company
Equally in charge, equally liable
limited partnership
Passive investors invest into the GP
Mix of GPs and LPs - who invest in partnership, don’t have managerial control, have managerial control
Passive investor has limited liability
S corp
Elect to be taxed as a partnership to eliminate double taxation
Must have less than 100 shareholders
LLCs - Limited liability organization
More flexible than S corp
Nontaxable entity
Shareholders = “members”
Partnership hybrid
Limited exposure to liability
