Compare the legal structure implications of a sole proprietorship and a Subchapter S Corporation for the seven parameters of 1) ownership, 2) liability, 3) taxation issues, 4) profit distribution, 5) voting on policy, 6) life of the legal structure, and 7) capitalization.
What will be an ideal response?
1) Ownership
• Sole proprietorship - the proprietor
• Subchapter S - the (up to 100) stockholders
2) Taxation
• Sole proprietorship - individual (the lowest rate)
• Subchapter S - individual (the lowest rate)
3) Profit distribution
• Sole proprietorship - proprietor receives all
• Subchapter S - earnings paid to stockholders/shareholders as dividends in proportion to the number of shares of stock that they hold/own
4) Liability
• Sole proprietorship - unlimited
• Subchapter S - limited
5) Voting on policy
• Sole proprietorship - not necessary
• Subchapter S - common stockholders vote
6) Life of the legal structure
• Sole proprietorship - death of the proprietor terminates the business
• Subchapter S - unlimited
7) Capitalization
• Sole proprietorship - difficult
• Subchapter S - good - easier than a proprietorship: can use both debt and equity.
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