Business Loans and Legal Forms Quiz

Organizing an Entrepreneurial Venture

• Various legal forms of business exist, differing by country.
• Factors influencing legal form choice include: taxation policy, employee projections (for next 10 years), legal liability level, and industry/product type.
• Taxation varies with legal form and country. Taxation often plays a significant role in business choice.
• Number of employees greatly impacts the need for benefit packages for employees and top management.
• Legal liability can vary greatly and may play a significant role.
• The industry can also determine the most suitable legal form.
• The cost of establishing a business increases with the complexity of the chosen legal structure.
• Sole proprietorship, the least expensive, is often seen as the first step by individuals.
• Ownership can vary based on the chosen structure and may include spouses, children, or others integral to formation.
• Transferability of ownership greatly differs depending on the legal structure.
• Raising capital varies with legal structure.
• Capital raising is easier and has more options in corporations because of limited liability.
• Profit and loss distribution mechanisms depend on the business structure.
• Proprietorship/partnership ownership may also have liability/responsibility.
• Taxation, liability concerns, and capital requirements are key aspects to a successful business.
• Legal form choice impacts management control over decisions and operations.
• Proprietorship has simplest management structure.
• The choice of structure impacts the availability of capital.
• Corporations are most attractive as they use limited liability, raising investment capital.
• Different ways to distribute profits and losses based on the structure of the entity.
• Owners' liability differs across organizational structures, and is an important factor in decision making.
• Tax structure of the country/region plays a key role in business formation considerations.

Types of Legal Forms Available in U.S.

• Limited liability company (LLC): Provides individual protection, avoids double taxation.
• S-corporation: Limited to 100 owners, similar benefits to LLC
• C-corporation: Double taxation. Publicly traded companies often use this structure.
• Non-profit organization: Gifts at least 80% of income to a specified non-profit to retain status.
• Hybrid corporation: Percentage of specified income to a non-profit.
• Professional corporation (PC): Specific to certified professional professions (lawyers, accountants, etc.)

General Organizational Structures

• Proprietorship, Partnership, and Corporation are three broad categories of legal forms.
• Evaluating each structure's characteristics is essential for selecting the most suitable organizational structure.

Costs of Starting a Business

• Complexity of business structure generally increases start-up costs.
• Proprietorship often has the lowest start-up costs.
• Partnerships involve formal documents defining responsibilities and rights.
• Corporations require registering name and articles, meeting legal requirements.

Ownership

• Proprietorship: Owner is typically the individual who starts the business.
• Partnership: Can include individual & general partners.
• Corporation: Ownership is split into shares of stocks.
• Maximum owners varies depending on the specific form, structure and/ or legal form.

Transferability of Ownership

• Proprietorship allows easy transfer of ownership.
• Partnership ownership transfers are often restricted due to need for unanimous consent among partners.
• Corporate ownership (through stock exchange) is more easily transferable.

Capital Requirements

• Proprietorship: Raising capital often relies on personal funds or loans from individual owners.
• Partnership: Capital generally needs changes in partnership agreements to make changes.
• Corporations offers multiple investment options.

Management Control

• Proprietorship: Owner/manager has most direct control.
• Partnership: Management decisions determined by agreement, and major decisions often require a majority vote.
• Corporation: Stockholders elect a board of directors, and they often oversee management decisions, particularly major decisions.

Attractiveness for Raising Capital

• Corporation is generally more attractive for raising capital due to the limited liability of investors.

Distribution of Profits and Losses

• Proprietorship: Profits go directly to the owner. Losses are borne by the owner.
• Partnership: Profit/loss distribution depends on the partnership agreement.
• Corporations: Profits are distributed as dividends. Losses are absorbed by the corporations.

Liability of Owners

• Proprietorship: Owners have personal liability for business debts.
• Partnership: Owners (partners) have personal liability for business debts.
• Corporation: Owners' liability is limited to the amount of their investment.

Taxes

• Proprietorship: Taxes handled similar as the individuals.
• Partnership: Taxed similar to the individuals.
• Corporation: Taxes on profits and dividends generally paid out to owners/investors.

Board of Directors /Board of Advisors

• The board of directors' legal liability for decisions. The Board of Directors will resolve conflicts and operations issues and approves budget/ strategy plans as well as monitoring asset use.
• Boards of Advisors offer advice but do not have direct management responsibilities/liability.
• These boards take on specific skills that are needed at the time, and often offer mentorship along with other advisory services.
• Both offer various support options.

Board Meeting

• Meetings of both the board of directors and board of advisors can take place as needed; advisors can be separate individuals who meet and advise.
• Advisors can include members of the community, friends, family, etc.

Government Agency Grants (DTI, Department of Trade and Industry)

• This agency offers programs aiding in the starting and growing of small and medium businesses.
• Interest-free loans, financial assistance and programs geared towards business success are available through their various business support methods.

Landbank of the Philippines

• The specific mission stated is to alleviate poverty through economic growth.
• The agency encourages marginalized sectors and focuses on economic growth in general.

GSIS Family Bank Microfinance Lending Program

• Alternative system enabling easy and accessible credit for urban and rural poor in the Philippines.

DOST (Department of Science and Technology)

• Programs aid in the viability and technical advancement of SMEs.
• Cash assistance and programs to upgrade technology and skills for businesses.

DBP (Development Bank of the Philippines)

• Provides loans for micro, small, and medium ventures to help support economy and sector growth.

SULONG

• Strategy to unify access to finances for smaller businesses by coordinating with multiple lending sources.

Assignment

• Addresses the identification of eligible borrowers for different government programs at the start-up phase.

Test your knowledge on business loans, legal forms, and various programs designed to support small and medium enterprises. This quiz covers important details regarding the eligibility for interest-free loans, the GSIS Family Bank Microfinance Lending Program, and factors influencing the legal structure of businesses.