Rehman

PRESENTATION ADNAN ALI USIFZAI 1411-307079 ZAKIR AMIN USIFZAI 1411-307062 M.RIAZ KHAN USIFZAI 1411-3070 JUNAID-UR-REHMAN USIFZAI 1411-307006

Sole Proprietorship The sole proprietorship is the oldest, most common, and simplest form of business organization. A sole proprietorship is a business entity owned and managed by one person. The sole proprietorship can be organized very informally, is not subject to much federal or state regulation, and is relatively simple to manage and control. The prevalent characteristic of a sole proprietorship is that the owner is inseparable from the business. Because they are the same entity, the owner of a sole proprietorship has complete control over the business, its operations, and is financially and legally responsible for all debts and legal actions against the business. Another aspect of the "same entity" aspect is that taxes on a sole proprietorship are determined at the personal

Sole Proprietorship A sole proprietorship is a good business organization for an individual starting a business that will remain small, does not have great exposure to liability, and does not justify the expenses of incorporating and ongoing corporate formalities.

Sole Proprietorship - Points to Consider • Easiest type of business organization to establish. There are no formal requirements for starting a sole proprietorship • Decision making is in direct hands of owner. • All profits and losses of the business are reported directly to the owner's income tax return. • The startup costs for a sole proprietorship are minimal. • Owner has unlimited liability. Both the business and personal assets of the sole proprietor are subject to the claims of creditors. • Because a sole proprietorship is not a separate legal entity, it usually terminates when the owner becomes disabled, retires, or dies. As a result, the sole proprietorship lacks continuity and does not have perpetual existence like other business organizations. • It is difficult for a sole proprietorship to raise capital. Financial resources are generally limited to the owner's funds and any loans outsiders are willing to provide. • Owner could spend unlimited amount of time responding to business needs.  

Sole Proprietorship - Key Attributes • Creation (minimum requirements) - No Formalities for creating a sole proprietorship. • Profits / Losses / Distributions - Owner may use all profits and losses for business. • Liability - Owner faces unlimited personal liability. • Capital / Financing - All capital obtained from owner or through loans based on owner's creditworthiness. • Duration - Usually no continuity upon disability, retirement or death of owner. • Transfer of Ownership - Assets may be sold in entirety or in part. • Management and Control - Owner manages and controls the company. • Taxation - The business does not file or pay taxes. • Reporting Requirements - None. • Fees - None.

Sole Proprietorship Advantages • Easiest and least expensive form of ownership to organize. • Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. • Sole proprietors receive all income generated by the business to keep or reinvest. • Profits from the business flow-through directly to the owner's personal tax return. • The business is easy to dissolve, if desired.    

Sole Proprietorship Disadvantages • Sole proprietors have unlimited liability and are legally responsible for all debt • Against the business. Their business and personal assets are at risk. • May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans. • May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business. • Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

Partnership • Partnerships consist of two or more partners who are both responsible for business. They share assets, profits, liabilities, and management responsibilities for running their business. These partnerships provide a means of raising capital, and also allow several people to combine resources and expertise. However here are some of the disadvantages: • Partners may have different visions or goals for the business. • There may be unequal commitment of time and finances. • There may be personal disputes. • Partners are personally liable for the business debts and liabilities. • Each partner may be liable for debts incurred, decisions made, and actions taken by the other partner. OR • A partnership is an association of two or more persons who co-own a business for a profit. A partnership is easily formed by two or more people who jointly agree to form the business. It requires no governmental action. It does not even require a written agreement although one is strongly recommended. When a partnership is formed and there is no agreement, it can be very difficult to substantiate a case when legal action is required.

Partnership • A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

Characteristics and Types of Partnership The Written Partnership Agreement when a written agreement is entered into, the following points should be clarified in the agreement: 1. Name, location, and nature of the business. 2. Name, initial capital investment, and responsibilities of each partner. 3. Method of sharing profits and losses. 4. Withdrawals of assets allowed to each partner. 5. Procedures for settling disputes between the partners. 6. Procedures for admitting new partners. 7. Procedures for handling the withdrawal of a partner or partners. 8. Procedures for liquidating the partnership.

Characteristics and Types of Partnership Limited Life • The life of a partnership is limited to the length of time that all partners continue to own the business. If one partner withdraws from the partnership, it ceases to exist. The death of a partner also dissolves the partnership. If a new partner enters the partnership, the old partnership ceases and a new one begins. Mutual Agency • Every partner in the partnership can bind the business to a contract within the scope of the partnership's regular business. This means that an individual partner, acting on her own, without any input from the other partner (s) can enter into a contract that binds all of the the partners to fulfillment of the contract. The contract, must however, be of a usual nature for the type of business the partnership is involved in.

Characteristics and Types of Partnership Unlimited Liability • if there are not enough partnership assets to pay the debts of the partnership, the partner’s personal assets are at risk. This is, perhaps, one of the biggest drawbacks to the partnership form of business. As our society becomes increasingly litigious, and as jury awards become increasingly large, business people have tended to shy away from partnerships to protect their personal assets. • The limited partnership is one way to get away from unlimited liability. In the limited partnership, there must be one or more general partners who assume unlimited liability and an unlimited number of limited partners whose exposure is limited to their investment. Several major league sports teams operate as limited partnerships.

Characteristics and Types of Partnership Co-Ownership of Property • All assets and liabilities that an individual partner invests in the partnership become the property of the partnership itself • No Taxation of Partnerships • A partnership pays no income taxes on its net income. Instead, the net income of the partnership is divided among the partners and they pay income taxes on their individual shares of the net income. Owner's Equity Accounts for Partners • The major difference in partnership accounting as compared to proprietorship accounting has to do with the owner's equity accounts. In partnership accounting, the owner's equity section of the balance sheet contains one line for the owner's equity of each partner. You will see more about this later.

Types of Partnerships • There are two types of partnerships: general partnerships and limited partnerships. Each is explained below. General Partnerships • In a general partnership, each partner is a full owner of the business with all of the privileges and risks of ownership. Each partner shares in gains and losses of the partnership. Each general partner also shares in unlimited liability which characterizes general partnerships.

Types of Partnerships •

In a limited partnership, there are at least two classes of partners. There must be at least one general partner who is responsible for managing the business on a daily basis. If the business fails, the general partner or partners is fully liable for any debts that the partnership cannot pay out of partnership assets. The second class of partners are the limited partners who generally put up the largest share of the assets. The limited partners, because of their investments, usually have first claim to the net income of the partnership, but only to a certain amount. Any excess profits go to the general partners for their expertise in running the business.

Types of Partnerships • There are also limited liability partnerships. Limited Liability Partnerships are easily identified because L.L.P. follows the name of the business. Although the liability of the individual partners is limited, these types of business are forced to carry significant insurance policies to protect the public.  The large public accounting firms are good examples of limited liability partnerships.

Business Partnership Advantages • Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. • With more than one owner, the ability to raise funds Debt vs Equity may be increased. • The profits from the business flow directly through to the partners' personal tax returns. • Prospective employees may be attracted to the business if given the incentive to become a partner. • The business usually will benefit from partners who have complementary skills.

Business Partnership Disadvantages • Business Partners are jointly and individually liable for the actions of the other partners. • Profits must be shared with others. • Since decisions are shared, disagreements can occur. • Some employee benefits are not deductible from business income on tax returns. • The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Corporation • A corporation is a legal entity that can exist separately from its owners. Creation of a corporation occurs when properly completed articles of incorporation (called a charter or certificate of incorporation in some states) are filed with the proper state authority, and all fees are paid.

What are the advantages of corporation? • One of the primary advantages of corporation is the limited liability the corporate entity affords its shareholders. Typically, shareholders and directors are not liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder or director to pay debts of the corporation. In a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business. Maintaining the limited liability of a corporation requires that the shareholders and directors follow all the rules of governance, including holding annual meetings and maintaining meeting minutes, which is why we offer corporate forms disks and corporate kits as part of our complete incorporation package.

Other advantages • A corporation's life is not dependent upon its members. A corporation possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business. • Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation. • Ownership of a corporation is easily transferable. • Capital can be raised more easily through the sale of stock. • A corporation possesses centralized management.

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What are the disadvantages of corporation? The primary disadvantage to a corporation is double

taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. All reasonable business expenses such as salaries are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making an S corporation election.

Other disadvantages • There is more complexity and expense with forming a corporation. • There is more extensive record keeping requirements. • Operating a corporation across state lines often requires the corporation to qualify to do business in the other state.

Characteristics of a Corporation Unlimited life • As a corporation is owned by stockholders and managed by employees, the sale of stock, death of a stockholder, or inability of an employee to function does not impact the continuous life of the corporation. Its charter may limit the corporation's life although the corporation may continue if the charter is extended. Limited liability • The liability of stockholders is limited to the amount each has invested in the corporation. Personal assets of stockholders are not available to creditors or lenders seeking payment of amounts owed by the corporation. Creditors are limited to corporate assets for satisfaction of their claims. Separate legal entity • The corporation is considered a separate legal entity, conducting business in its own name. Therefore, corporations may own property, enter into binding contracts, borrow money, sue and be sued and pay taxes. Stockholders are agents for the corporation only if they are also employees or designated as agents.

Characteristics of a Corporation

• Relative ease of transferring ownership rights • A person who buys stock in a corporation is called a stockholder and receives a stock certificate indicating the number of shares of the company she/he has purchased. Particularly in a public company, the stock can be easily transferred in part or total at the discretion of the stockholder. The stockholder wishing to transfer (sell) stock does not require the approval of the other stockholders to sell the stock. Similarly, a person or an entity wishing to purchase stock in a corporation does not require the approval of the corporation or its existing stockholders before purchasing the stock. Once a public corporation sells its initial offering of stock, it is not part of any subsequent transfers except as a record keeper of share ownership. Privately held companies may have some restrictions on the transfer of stock. • Professional management • Investors in a corporation need not actively manage the business, as most corporations hire professional managers to operate the business. The investors vote on the Board of Directors who is responsible for hiring management.

Characteristics of a Corporation

Ease of capital acquisition • A corporation can obtain capital by selling stock or bonds. This gives a corporation a larger pool of resources because it is not limited to the resources of a small number of individuals. The limited liability and ease of transferring ownership rights makes it easier for a corporation to acquire capital by selling stock, and the size of the corporation allows it to issue bonds based on its name. Government regulations • The sale of stock results in government regulation to protect stockholders, the owners of the corporation. State laws usually include the requirements for issuing stock and distributions to • Stockholders. The federal securities laws also govern the sale of stock. Publicly held companies with stock traded on exchanges are required to file their financial statements and additional informative disclosures with the Securities and Exchange Commission. Certain industries, such as banks, financial institutions, and gaming, are also subject to regulations from other governmental agencies.