SAS 301

UNINCORPORATED BUSINESS

Unincorporated business is a privately owned business, often owned by one person who has
unlimited liability as the business is not legally registered as a company.

Incorporated Business Structures

 

Joint Venture

A Joint Venture is a legal entity formed between two or more parties

to undertake economic activity together. The parties agree to create a
new entity by both contributing equity, and they then share in the
revenues, expenses, and control of the enterprise. The venture can be
for one specific project only, or a continuing business relationship
such as the Sony Ericsson joint venture. 

Limited Partnership

A limited partnership (LP) is comprised of one or more general partners and one or more
limited partners in order to form a separate, legal entity. Very much like a General
Partnership, save for the separate, limited status of the limited partners. The driving concern
is usually protection from liability and the ability to distribute funds among many
shareholders (in the form of dividends) that would otherwise not be possible under a
standard corporation. The general partners are responsible for the daily operations of the
company, and are personally liable for its obligations and debts. To absorb the liability, a
corporation or a limited liability company is most often used in the general partner position of
a Limited Partnership. The limited partners invest capital in the company and share in the
profits, but take no part in the daily operation of the business. Their liability, should the
company be sued, is limited in proportion to the amount of capital that they invest.

 
Limited Liability Company

A limited liability company, or “LLC” is a business organization structure that allows for
certain favorable tax treatments, as well as personal liability protection, for the “members”
involved. It is important to note that the specific structure and status can vary from state to
state so complete consideration of the state’s laws in which the LLC will be formed is
crucial.

An LLC as a business structure model allows for multiple owners, or “Members,” and a
“Managing Member,” to enjoy limited liability. The Managing Member is typically the figure
head of the organization and is responsible for it’s management. The profits or losses of the
business organization pass directly through to the member’s personal income tax returns.

C Corporation

A traditional Corporation (or “C” Corporation) is an incorporated business structure that

creates a new, separate, legal entity that is distinct from its owner(s). As a separate, legal
entity, a C Corporation can engage in business, have its own bank accounts, enter into legal
commitments, establish its own credit identity, and even acquire property and assets. One of
the chief advantages of being a separate entity is that the owners of the Corporation, known
as “Shareholders,” enjoy limited liability protection. This means that their personal assets
are shielded from any liability incurred by the corporation, and that they are not personally
liable for any legal liabilities resulting from any litigation against the corporation. In addition,
there are tax and fringe benefits enticements that make a Corporation an ideal business
formation for the business person looking to take the next step in asset protection and
limited liability. 

S Corporation

An S Corporation is an incorporated business structure that is formed in such a way as to

comply with sub-chapter S of the Internal Revenue Code. Limited to 100 shareholders in
most states, the S Corporation provides for the limited liability of a standard Corporation,
and couples it with the pass-through taxation of a partnership. This means that the
shareholders avoid the pitfalls of double-taxation, where income is first taxed a the company
level, then again at the individual level, while at the same time providing for the limited
liability protection of a Corporation. An existing Corporation can apply for S status before
two months and 16 days after the end of it’s fiscal year. 

Professional Corporation

A Professional Corporation is an incorporated business structure formed by individuals or

groups of individuals that would other wise be exclude from corporate formation eligibility.
These professionals include doctors, lawyers, accountants, engineers, etc., thought the list
will vary in small detail state by state. The group must be organized with the intent of
providing professional services, and must consist of professionals licensed to practice their
particular profession. 

Non-Profit Corporation

A Nonprofit Corporation is an incorporated entity designed to perform activities and enter

transactions without the traditional intent of generating profits. A Non-Profit Corporation
provides for many of the same shields from liabilities to its shareholders that a traditional
Corporation provides. Contrary to its title, a Non-Profit Corporation can in fact generate
profits, but that must not be its primary intent, and all profits must be used in furtherance of
the non-business goals of the Non-Profit Corporation. There are no capital distributions or
dividends paid to shareholders in a Non-Profit Corporation.
Advantages of owning an unincorporated business

 Financial information remains private to the owners of the business

 Simpler to operate
 Each owner has more control over the business.
 Business only pays income tax on profits.

Disadvantages of owning incorporated businesses

 Must give certain financial information about the business to general public if requested
 Must keep things such as accounting records which costs money
 Less control over business
 Must pay corporation tax and income tax on profits (often referred to as double taxation
Sources of capital for unincorporated business.

1. Personal investment
When starting a business, your first investor should be yourself—either with your own cash or
with collateral on your assets. This proves to investors and bankers that you have a long-term
commitment to your project and that you are ready to take risks.

2. Love money
This is money loaned by a spouse, parents, family or friends. Investors and bankers considers
this as "patient capital", which is money that will be repaid later as your business profits
increase.
When borrowing love money, you should be aware that:

 Family and friends rarely have much capital

 They may want to have equity in your business
 A business relationship with family or friends should never be taken lightly
3. Venture capital
This involves giving up some ownership or equity in your business to an external party. Venture
capitalists also expect a healthy return on their investment, often generated when the business
starts selling shares to the public. Be sure to look for investors who bring relevant experience
and knowledge to your business.

. Like most other venture capital companies, it gets involved in start-ups with high-growth
potential, preferring to focus on major interventions when a company needs a large amount of
financing to get established in its market.
4. Angels
Angels are generally wealthy individuals or retired company executives who invest directly in
small firms owned by others. They are often leaders in their own field who not only contribute
their experience and network of contacts but also their technical and/or management
knowledge.
In exchange for risking their money, they reserve the right to supervise the company's
management practices. In concrete terms, this often involves a seat on the board of directors
and an assurance of transparency.

5. Business incubators
Business incubators (or "accelerators") generally focus on the high-tech sector by providing
support for new businesses in various stages of development. However, there are also local
economic development incubators, which are focused on areas such as job creation,
revitalization and hosting and sharing services.
Commonly, incubators will invite future businesses and other fledgling companies to share their
premises, as well as their administrative, logistical and technical resources. For example, an
incubator might share the use of its laboratories so that a new business can develop and test its
products more cheaply before beginning production.

Generally, the incubation phase can last up to two years. Once the product is ready, the
business usually leaves the incubator's premises to enter its industrial production phase and is
on its own.

6. Government grants and subsidies

Government agencies provide financing such as grants and subsidies that may be available to
your business.
Criteria
Getting grants can be tough. There may be strong competition and the criteria for awards are
often stringent. Generally, most grants require you to match the funds you are being given and
this amount varies greatly, depending on the granter. For example, a research grant may
require you to find only 40% of the total cost.

Generally, you will need to provide:

 A detailed project description

 An explanation of the benefits of your project
 A detailed work plan with full costs
 Details of relevant experience and background on key managers
 Completed application forms when appropriate
Most reviewers will assess your proposal based on the following criteria:

 Significance
 Approach
 Innovation
 Assessment of expertise
 Need for the grant
Some of the problem areas where candidates fail to get grants include:

 The research/work is not relevant

 Ineligible geographic location
 Applicants fail to communicate the relevance of their ideas
 The proposal does not provide a strong rationale
 The research plan is unfocused
 There is an unrealistic amount of work
 Funds are not matched
7. Bank loans
Bank loans are the most commonly used source of funding for small and medium-sized
businesses. Consider the fact that all banks offer different advantages, whether it's personalized
service or customized repayment. It's a good idea to shop around and find the bank that meets
your specific needs.

Features of an Incorporated Business

1. Registration:
Incorporation is the legal process through which the separate corporate entity of a company is
given recognition by law.

To secure incorporation, the promoters prepare and file with the Registrar of joint stock
companies the following documents:
(i) Memorandum of Association

(ii) Articles of Association

(iii) Written consents of persons who have agreed to serve as directors of the company

(iv) Notice of the registered office of the company and

(v) A statutory declaration by the Secretary of the proposed company or a solicitor to the effect
that all provisions regarding incorporation have been complied with.

  2. Voluntary Association:
A company is an association of many persons on a voluntary basis. Therefore, a company is
formed by the choice and consent of the members.

 3. Legal Personality:

It is created for the purpose of enabling a group of persons to conduct some activity in a more
convenient way than would be possible by retaining their identity as individuals. Although
invisible and intangible, as a legal person, the company enjoys almost all the rights of a natural
person. It has the right to enter into contracts and own property. It can sue and can be sued.
4.Management:
the management of the company has to be entrusted to the Board of Directors. The Companies
Act also states that the Board is entitled to exercise all such powers as the company is authorised
to exercise in general meeting.

The Directors are the exclusive representatives of the company and are entrusted with the
administration of its internal affairs and the management and use of its assets. The shareholders
are the risk-bearers while the directors are the risk-takers.

5. Permanent Existence or Perpetual Succession:

The right given to the shareholders to transfer their shares without affecting the position of the
company gives the company continuity. As a natural consequence of incorporation and
transferability of shares, the company has perpetual succession.

6. Common Seal:
The law requires every company to have a seal with its name engraved on it. As the company has
no physical form, it cannot sign its name on a contract. Hence, all documents and contracts
require the affixing of the seal. But now most of the transactions are signed by the directors who
act as its agents. When the seal is affixed on any document, it has to be witnessed by two
directors.

 7. Limited Liability:

The liabilities of a shareholder of a company are limited. A person, by buying shares in a
company, acquires an interest in the company and is at liberty to dispose of these shares
whenever he likes. A shareholder is liable only to pay for his own share in the company.

8. Control:
The members of the company, who contribute the share capital, have the ultimate control over
the company’s affairs. Every company is required to hold an annual general meeting at which
the shareholders will exercise their power of control.

9. Taxation:
The tax burdens of companies are heavier than either on sole proprietor or partnership. A
company’s profits are taxed at a flat rate against slab rates charged for non-corporate bodies. In
other words, the rate of income tax for a company will be the same irrespective of whether the
profits are high or low.