EC 4

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Questions and Answers

What is a crucial factor in choosing a form of business ownership?

Understanding the characteristics of each form of ownership (correct)

Choosing the most popular business model

The size of the business investment

The opinion of industry leaders

What should be included in a partnership agreement?

Bank account information (correct)

Historical performance data of the partnership

Estimated profit for the first five years

The background of each partner

Which of the following is NOT a factor to consider when choosing a form of ownership?

Tax considerations

Start-up and future capital requirements

Liability exposure

Personal reputation of partners (correct)

What is a key characteristic of a partnership?

Partners are personally liable for partnership debts (B) Signup and view all the answers

Which aspect is most crucial to the success of a partnership?

Having a formal partnership agreement (C) Signup and view all the answers

Which of these business structures offers limited liability for its owners?

Corporation (B), LLC (D) Signup and view all the answers

What are the potential disadvantages of forming a corporation?

All of the above (D) Signup and view all the answers

Which business structure is the most common in Japan, despite being more expensive to establish and maintain?

Corporation (D) Signup and view all the answers

What was the primary reason for the discontinuation of yugen-gaisha (有限会社) in 2006?

Legal reforms aiming to streamline company registration and management (B) Signup and view all the answers

What is a significant disadvantage of forming a partnership compared to other business structures?

Requirement of a minimum of two partners to form the business (A) Signup and view all the answers

What is the main distinction between LLCs and corporations?

LLCs cannot trade stocks on the open market, whereas corporations can. (C) Signup and view all the answers

Which business structure is considered the best option for most cases in Japan?

LLC (C) Signup and view all the answers

Why might it be difficult for an LLC to raise large amounts of capital?

Stock in the company cannot be traded on the open market, limiting investment options. (B) Signup and view all the answers

What is the initial step involved in establishing a corporation in Japan?

Preparing and sealing articles of incorporation (D) Signup and view all the answers

Which of the following is NOT a requirement for establishing a corporation in Japan?

Obtaining a license from the relevant industry regulatory body (A) Signup and view all the answers

What is a key characteristic of a general partner in a partnership?

They take an active role in managing the business. (A) Signup and view all the answers

Which type of partner is considered neither active nor known in the business?

Dormant partner (C) Signup and view all the answers

What document specifies the terms of a buyout in a partnership?

Buy-sell agreement (A) Signup and view all the answers

What must a corporation do to maintain its legal status?

Hold annual meetings (A) Signup and view all the answers

In which type of corporation do income and losses pass through to the owners?

Limited Liability Company (LLC) (B) Signup and view all the answers

What is one of the disadvantages of a C Corporation?

Double taxation of profits (B) Signup and view all the answers

Which of the following is NOT typically a requirement for a corporation?

Employ only general partners (D) Signup and view all the answers

What distinguishes a Limited Liability Partnership (LLP) from a traditional partnership?

Professional partners typically have limited liability. (B) Signup and view all the answers

What information is included in a corporation's Articles of Incorporation?

Names and addresses of the incorporators (B) Signup and view all the answers

What is a defining feature of a domestic corporation?

Operates in the state where it is registered (D) Signup and view all the answers

Which of the following statements is TRUE about limited partners?

Their liability is limited to their investment. (A) Signup and view all the answers

Which type of corporation typically has shares that can freely be traded on stock exchanges?

Publicly held corporation (A) Signup and view all the answers

What legal document establishes the rules under which a corporation will operate?

Bylaws (D) Signup and view all the answers

Which characteristic is NOT allowed in a Limited Liability Company (LLC)?

Free transferability of interests (C) Signup and view all the answers

Study Notes

Forms of Business Ownership

No single "best" form of ownership exists; the best choice depends on the entrepreneur's specific situation.
Key factors to consider include tax implications, risk exposure, startup and future capital needs, management control, business goals, succession planning, and formation costs.

Major Forms of Ownership (US)

Sole Proprietorship
Partnership
Corporation
S Corporation
Limited Liability Company (LLC)
Joint Venture

Percentage of Businesses (US)

Sole Proprietorships: 71.6%
C-Corporations: 5.6%
S-Corporations: 12.8%
Limited Liability Companies: 6.0%
Limited Partnerships: 1.7%
General Partnerships: 2.3%

Percentage of Sales (US)

C-Corporations: 64.3%
S-Corporations: 18.0%
Sole Proprietorships: 3.9%
Limited Liability Companies: 7.5%
Limited Partnerships: 4.3%
General Partnerships: 2.0%

Percentage of Net Income (US)

C-Corporations: 39.0%
S-Corporations: 15.6%
Limited Liability Companies: 13.0%
Sole Proprietorships: 11.8%
Limited Partnerships: 12.3%
General Partnerships: 8.2%

Sole Proprietorship

Advantages: Simple to create, least costly to start, profit incentive, full control, no special legal restrictions
Disadvantages: Unlimited personal liability, limited skills/abilities, feelings of isolation, limited access to capital.

Partnership

Represents an association of at least two people co-owning a business for profit.
It is wise to have a written partnership agreement specifying operating terms and protecting partners' business interests.
Strong trust and mutual respect are crucial for success.

Partnership Agreement

Covers partnership name and addresses, duration, business purpose, bank account details, contributions, compensation, management authority, operational responsibilities/decision processes, and voting/tiebreaker rules.
Outlines terms for new partner admission, work hours/vacation, business activities allowed, handling partner departures.
Defines dispute resolution and buy-sell agreements to address partner death, divorce, incapacity, or retirement.

Types of Partners

General Partners: Active in business management, have unlimited liability for all business debts.
Limited Partners: Not involved in day-to-day operations, have limited liability for business debts

Limited Partnership

A partnership with at least one general partner and one or more limited partners.
General partners have full liability; limited partners have limited liability. Limited partners are essentially investors.

Limited Liability Partnerships (LLPs)

A limited partnership type where all partners are limited partners.
This provides limited liability for business debts.
An LLP does not pay taxes as income is passed through to its partners.

Corporation

A separate legal entity from its owners that has the right to exist in the state of incorporation.
Types:
- Domestic: operates in the incorporating state.
- Foreign: does business in another state than where it was incorporated.
- Alien: formed in another country and operates in a U.S. state.
Types (further):
- Publicly held: numerous shareholders who trade stock publicly.
- Closely held: small number of shareholders, often family or friends.

Avoiding Legal Tangles (Corporations)

Company name should clearly denote it's a Corporation (e.g., "Inc.").
File required reports and pay fees to the state.
Hold regular officer/director meetings and document them.
Decisions made are by the corporate governing board; officers sign all documents on behalf of the corporation.
Maintain distinct separation of corporate assets from personal assets.

Articles of Incorporation

Documents outlining company name, purpose, duration of business operations, names/addresses of incorporators, place of business.
Details about capital stock authorization, initial capital, share transfer restrictions, names/addresses of officers/directors.
Contains operating rules the corporation must adhere to.

C Corporation

Traditional form of incorporation where the corporation and shareholders pay taxes separately resulting in double taxation.

Limited Liability Company (LLC)

Combines aspects of partnerships and corporations but is not subject to many of the corporation restrictions,
Characteristics: Limited liability, continuity of life, free transferability of ownership, centralized management.

Companies in Japan

Four Main types exist; corporations (kabushiki-gaisha), LLCs (goudou-gaisha), general partnerships (goumei-gaisha), limited partnerships (goushi-gaisha).
There is also a discontinued type called Yugen-gaisha.

Sole Proprietorship (Japan)

A simple business structure with reduced tax obligations initially.
Owners have full responsibility for all business earnings and debts.

How to establish a corporation (Japan)

Plan business, coordinate among stakeholders
Prepare incorporation documents, submit them for public notarization
Establish a corporate account, transfer investment funds
Prepare/seal documents for registration, register, get confirmation/certificate

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Description

Explore the different forms of business ownership in the US, including sole proprietorships, partnerships, and corporations. Learn about the advantages and disadvantages of each type, percentages of businesses, sales, and net income attributed to these structures. This quiz will help you understand which form may be best for different entrepreneurial situations.