They may have to sell their houses, cars, or other personal possessions to pay business debts. • What does limited liability mean? Limited liability means that corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest. Their other personal property is not at risk. • What is a master limited partnership?
Advantages and disadvantages are generally the same as a proprietorship. A major disadvantage is that a partner may be held responsible for the business debts even if the other partner is bankrupt. To avoid this there are limited partnerships where in certain partners are designated general partners and others limited partners. There are also limited liability partnerships. A corporation is a legal entity created under state laws, and it is separate and distinct from its owners and managers.
• Owner has full control of the business. Disadvantages of a sole trader: • All decisions you need to make • Capital is limited • It is hard to employ people • Partnership A partnership is an organisation where two or more people get their money, skills and other resources together and then share any profit or loss created in accordance with terms of the partnership agreement. Advantages of running a partnership • Businesses doesn’t have to pay income tax • Partners can share responsibilities. • Partners can also share decisions Disadvantages of running a partnership • Disagreement • Taxation • Profit sharing Limited Company A limited company is an organisation which can be set up to run your organisation, the limited company is then responsible in its own right for everything which they contribute in and their finances are spate to your personal finances. Any profit that is produced will be owned by the company after it pays Corporation Tax, this will then allow the company to share its profits.
Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations. 1(c) What potential income tax ramifications exist for Mr. Johnson personally if he purchases the stock of Smithon and converts it to an S corporation? If the Mr.Jones decides to convert Smithon to a subchapter S Corporation, it will enable the corporation itself to avoid paying taxes, but the profit and losses will be passed to shareholders as personal income and losses. Now we should consider the expected losses from the huge investment in equipment purchase. Net operating losses cannot be used to shelter personal income but can be carried forward by a C corporation to provide tax benefit in future when the business expects profit.
Solo Trader: Solo trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. These types of businesses are mostly small and local. Advantages: Quick decision making: A sole trader enjoys the freedom in making business decisions. The decision making is quick because there is no need to agree with anyone. This may lead to timely capitalisation of market opportunities as and when they rise.
A disadvantage of this type of ownership is that the owner has unlimited liability so banks can recover their debts from the owner’s personal assets if the business fails. Sole trading is best suited to individuals that possess a range of skills such as managing, organising, accounting and communication as they will be responsible for every task of their business. 2. Partnership: A partnership is a business that can have between 2 and 20 owners. The main advantage of a partnership is that the business can be funded by each partner to generate capital which
All management needs to know if the company has a risk of bankruptcy. Managers should understand at least the basic concept of ROI return on investment by this they will know if the invested funds are efficient. For example, a product that needs a $10 million investment to generate $1 million is less efficient than one that could generate $500,000 in profits with a $2 million investment cost. A person goes to business to make money therefore the primary goal of corporate finance is to maximize shareholder value. b.
First, payments on debt interest are tax deductible but payments on equity are not. Second, equity allows shareholders to share the company profits. With that, equity holders now also hold stake in AMSC and share control. Comparatively, debt financiers have little or no impact on control of the company; assuming payments are being made. Profits are also used to pay the debt, however, so how this weighs out as a disadvantage would clearly depends on how well or not
Friedman says that there is only one social responsibility for the business: to use its resources in order to increase its profits as long as the business stats within the rules that are assigned. Freeman claims that management serving only the interest of stockholders is already significantly restricted by laws and economic logic. Freeman argues that the owners’ claim on a company is worth the same as employees’, suppliers’, customers’ and the local community’s claims. All stakeholders maintain a reciprocal relationship of rendering and receiving resources to and from the corporation. Managers must act as balance-maintainers of stakeholder interests to guarantee the sheer existence of the corporation and not out of altruistic reasons.
• Current assets are assets with short lives, such as inventory. 3. The owners of a limited liability company generally prefer: • being taxed personally on all business income. • having liability exposure similar to that of a general partner. • having liability exposure similar to that of a sole proprietor.