Dr. Murad Abel
Check Point: Business Organization Week 2
Joint Stock Company
According to the text, in a joint stock company an entrepreneur raises capital by issuing stock certificates of its ownership. This involves selling shares of the stock to investors that guarantee them the rights to a certain percentage of the company’s profits. (Jones, 2007) Early stock joint companies originated back to medieval Europe where the business or economic system in which one class of people, aristocrats, controls the property rights to all valuable resources including people known as feudalism. In a joint stock company, the company divides the profits among the shareholders. The joint stock form of business organization allowed many people to share, and hence reduce, the risk of investing in individual trading ventures; this expanded global trading. (Jones, 2007) The main advantage of a joint stock company is that they potentially have access to large sums of money that can be invested in the business. The disadvantage is if the business fails because of poor management or the economy, the suppliers or creditors can sue all of the company’s stockholders to recover their money. Crown, a leading manufacturing and trading company in Viet Nam is an example of a joint stock company. Another example could be two entrepreneurs Tyler Perry and David Tolbert raising capital to offer stock certificates to investors and guaranteeing them a percentage profits made from their movies or plays.
Limited Liability Company (LLC)
A limited liability company is a business structured by state stature. In the text, with limited liability, if a company goes bankrupt, its creditors cannot seek the personal wealth of its stockholders for reimbursement. (Jones, 2007) One reason the unlimited liability law was implemented was to avoid fraud; however with the new limited liability law people were encouraged to risk their capital, hence the only risk is the money initially invested. (Jones, 2007) Limited Liability Companies are very popular. When I was consulting with an Attorney about starting my business, I was advised to set it up as a LLC. Many small and large businesses today are set up as LLC because business owners find it to be the easiest to conduct business, however generally banks and insurance companies cannot be LLC’s. Some advantages of an LLC are that it can pass through taxation principles and the company itself is not taxed unless it opts to be treated as a regular corporation. All business profits, losses, and expenses are accounted for by its individual members. Members show earnings on their individual tax return avoiding double taxation. Some disadvantages are LLC have a limited life and usually dissolve when the member die or face bankruptcy. The formation is more complex than of a sole proprietorship or partnership. LLC cannot issue shares to employees through stock options because there are no shares or share holdings. (InvestorGuide Contributor, 2012)
In a partnership, skilled professionals such as bankers, merchants, doctors, lawyers and accountants agree to pool their talent and resources by establishing a company in which they are the only stockholders and owners. (Jones, 2007) It is common for law firms to be created by partnership and then eventually expand by hiring new employees who eventually will become partners. For many law student, their dream is to become partner at a prestigious or upstanding firm. In a partnership, each founding partner receives an agreed upon percentage of the money the partner initially puts in, their skill, and experience. An example of a partnership would be Jamie and Kathy decides to open up a Restaurant. Each invest and own equal parts of the company. Because of Jamie’s skills she could be in charge of marketing, supplies and accounting. Whereas Kathy is skilled in management, therefore she’ll…