Chapter 3 - Presentation 1

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Chapter 3

Corporation A legally defined type of business ownership in which the business itself is considered a person under the law, and limited liability is granted to the business owners

Shareholder/StockholderOwner of the corporation

Share of Stock Is a unit of ownership in a corporation Corporations sell these to earn money for the business

Dividend Each share of stock may earn its owner a dividend, which is a portion of the corporations profit

C-Corporations Most corporations are c-corps, which are taxed as entities by the federal government

The majority of states require a corporation to have a board of directors, consisting of one or more individuals responsible for making decisions about how the business should operate

Subchapter S Corporations Differs on how it is taxed It is not taxed as an entity, rather the its income or loss is applied to each shareholder and appears on their tax returns. Not taxed twiceHas more restrictions than a SP and Partnership and is more complicated and expensive to set up

Limited Liability Corporation (LLC) Similar to a c-corp, but with simpler operating requirements and tax procedures and greater liability protection for the business ownersOwners are called members It is possible for an LLC to be owned by one individual. Very popular set up for professionals because it combines the liability benefits of a corporation with the tax benefits of a SP or Partnership

Non-Profit Corporation Defined type of business ownership in which the company operates not to provide profit for its shareholders, but to serve the good of society. Uses profit to further a mission Exists through donations rather than selling shares. Owners have limited liability regarding the companys debtsSpecial tax treatment from the IRS

Advantages of Corporations Shareholders have limited liabilityShareholders can end their ownership in the corporation by selling their shares to someone elseShares change hands when the owner of the shares dieCorporations can raise more money, more easily than sole proprietorships and partnerships

Disadvantages: More difficult and expensive to set up and maintainCorporations are regulated by state law, so to incorporate means to set up a corporation in accordance with the laws of the particular state where the business is located Corporation profit is taxed twice Pays taxes on the profit it earns and the shareholders pay personal taxes on corporate dividends received

CooperativeA business owned, controlled and operated for the mutual benefit of its members, people who use its services, buy its goods, or are employed by it. Examples Farms Not as common in the USShare earnings as dividends with members as dividends