Business Forms and Structures
There are benefits associated with each entity type. Generally, the LLC structure requires less paperwork and documentation than a Corporation (i.e., there is generally no need to have annual meetings or to update minutes with an LLC). The C-Corp structure is often utilized by entities that expect to have multiple investors or to raise money from the public, or if you want to entice or keep key employees by offering stock options and stock bonus incentives. The LLC structure is often used by privately held organizations. LLCs are generally chosen for either their tax advantages over corporations and their greater flexibility in economic and managerial structures.
Corporations
Of all of the types of structures, the corporation is by far the most popular, for a number of reasons:
1. ease of raising money
2. ease of transferring ownership (selling the business by selling shares)
3. limited personal liability for debts (you wont personally have to sell your house and car to pay the companies debts if there is a bankruptcy).
4. unlimited life of corporation (the company lives long after the founder has passed on, making transfers to the next generation much easier).
5. clear voting rights (the person with the most shares has the most votes).
Drawbacks to starting a corporation:
1. More paperwork
2. More licenses, regulations
3. Double taxation (the federal government taxes corporate income as well as personal income).
Division of responsibilities in a corporation
1. shareholders (owners)
2. directors (Board of Directors)
3. managers, corporate officers who manage the company for the owners
This separation of ownership and management gives corporations an advantage over other structures, but it also raises some very important conflicts of interest between shareholders and managers of corporations. Some of these issues arise because shareholders want the value of the firm to increase, and the stock price to rise, but the managers of the firm may be more concerned about increasing their own personal salaries, or job security.
How to incorporate a business
Incorporating a business
How to start a small business
Other types of structures
Sole Proprietorship
General Partnership
Joint Venture
Limited Partnership
Limited Liability Partnership
Limited Liability Company
Links
Links from KookyPlan
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