Name the three principle forms of business ownership In construction and state the liability limits of the owners In each case. A: The three principle forms of business ownership in construction are Proprietorship, Partnership, and Corporation. In a Proprietorship, the owners capital and that of the firm are one In the same, the credit that the firm can obtain and Its ability to generate new capital are limited by the personal assets of the proprietor and any losses incurred by the firm must be covered from personal assets of the ropiest.
Any liabilities incurred by the firm are the owner's liability, and must cover them from his personal fortune. A partnership Is similar to a proprietorship In the sense that liabilities of the firm are directly transmitted to the partners, which means there is no limitation of liability. A corporation is a separate legal entity and is created as such under the law of the state in which it is chartered. Because of the legal procedures required, the corporation Is the most complicated form of ownership to establish.
A lawyer Is normally retained to prepare the proper comments, fees must be paid to cover actions by the chartering body, printed stock is prepared, and formal meetings by the principals are required. Two disadvantages that are inherent in the corporate form of ownership are the reduced level of control exercised In management decision making and certain restrictions that can be placed on the corporation when operating outside of its state of incorporation. When a corporation operates outside of its state of incorporation, it is referred to as a foreign corporation.
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They must establish legal representation in states in which they operate as foreign corporations. Restrictive legislation of this type cannot be applied to proprietorships and partnerships, since these entitles consist of Individuals who are legally recognized. 2. Q: Which legal structure is most difficult to establish and why? A: In my opinion, a corporation is the most difficult to establish because of costs and procedures. Meetings must be held and the process is more complex and expensive than that of a proprietorship and partnership.
Local laws may encourage the formation of small and local businesses by placing restrictive constraints and aerodromes additional cost on out-of-state, or foreign, corporations. These discriminating practices must be investigated when bidding construction work in a state other than the one in which the construction corporation is chartered. Proprietorships and partnerships that consist of Individuals are protected against these discriminatory practices by the Constitution and enabling "equal rights" legislation. 3. Q: Name three types of partnerships. 1 OFF general partnership is a partnership with only general partners.
Each general partner takes part in the management of the business, and also takes responsibility or the liabilities of the business. If one partner is sued, all partners are held liable. General partnerships are the least desirable for this reason. A limited partnership includes both general partners and limited partners. A limited partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely investors who do not wish to participate in the partnership other than to provide an investment and to receive a share of the profits.
A limited liability partnership (ALP) is different from a limited readership or a general partnership, but is closer to a limited liability company (LLC). In the ALP, all partners have limited liability. An ALP combines characteristics of partnerships and corporations. As in a corporation, malpractice committed by other partners or by employees. Of course, any partners involved in wrongful or negligent acts are still personally liable, but other partners are protected from liability for those acts. 4. Q: Describe briefly two advantages and two disadvantages of a corporate form of business organization as compared to a partnership.
A: The primary advantage of a corporate form of business is that a corporation is a stand-alone entity, which means you are not personally liable for the assets and debts of the business. Incorporating protects your personal assets from lawsuits, debt collection and other business issues that can arise. The stand-alone entity also separates tax liabilities, which is another advantage. This means that the corporation taxes are separate from your personal tax liabilities. As a business owner, you are responsible for paying taxes only on the money the corporation pays you in the form f a salary, commission or dividends.
This is on your personal tax return. The corporation is responsible for paying corporate taxes (at the corporate tax rate) on any profit the company makes. One of the primary disadvantages of a corporation is the costs for running a corporate form of business. It costs money to incorporate with the state where the business operates. You can choose to hire an attorney or accountant to help you complete the incorporation paperwork, but it is not a requirement. If you incorporate directly with the Secretary of State, as of 2010, the fee angers from $99 to $150.
Beyond the initial incorporation fees, the corporate form of business also has ongoing fees associated with it. An annual report fee can range up to $1 50 a year for each year the corporation exists after the initial incorporation filing. Another disadvantage is double taxes. For normal corporations, the corporation ends up paying taxes twice. First, when the corporation turns a profit, it pays a corporate tax rate on the profit amount. The second time the corporation pays taxes is when it pays dividends to shareholders.
Many businesses that incorporate choose to incorporate as a subtracted "S" corporation instead in order to avoid paying taxes twice. The only difference between a normal corporation and an S corporation is a tax designation filed with the IRS. According to the IRS, an S corporation can choose to pass the income, losses, deductions and credit for the corporation through to the taxation possibility a normal corporation is subject to. 5. A: It would be advantageous for him to incorporate as a closely held corporation because he would only pay taxes on dividends, that is, money actually received.
Whereas, in a proprietorship he is taxed on personal income and on earnings whether or not they are withdrawn. (Not quite sure about the answer to this question. Must ask professor) 6. Q: What is meant by the term "foreign" corporation? A: When a corporation operates in a state other than the one in which it is incorporated, it is referred to as a "foreign" corporation. For instance, a corporation incorporated in Delaware is considered a foreign corporation in Indiana. Corporations in certain industries may encounter restrictive laws when operating as a foreign corporation.
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