Chapter 1 Overview of Financial Management & Environment

Advantages- Less liability for stakeholders. Ability to raise funds/capital in the form of stocks as needed.

* Corporations incur taxes at the corporate level at marginal rates; while, distributions to shareholders are taxed at dividend rate

First, the corporation pays tax on its corporate income; then, the shareholders pay personal income tax on the same income when it is distributed to them as dividends (“How Many People Do You Need to Form a Corporation?,” n.d.).

Due to the fact that corporations are separate legal entities from their owners, C-corporations are taxed separately requiring the filing of IRS Form 1120 each year to report its income and take advantage of any credits or deductions for which the corporation may be eligible (Internal revenue Service (IRS), 2012b). Income tax rates for corporation are tailored to corporations and as such are different from those

A corporation is an independent legal entity, separated from ownership and management. In the eyes of the law, corporations are recognized as its own “person” that is able to enter into contracts, incur and pay debts, and pay taxes. Advantages are tax-deductible expenses, unlimited life (not affected by the death of an owner), unlimited capacity for shareholders, easy transfers of stock, and protection of personal assets. Owners are not responsible for the corporation's liability.

b 1 sole proprietorship; this is when a the company is owned by a single individual owner it advantages is that it is easily formed, it is not taxed at corporate level and it has few government regulations. its disadvantage is that it is difficult to obtain large sum of capital, owner has unlimited debts and the business life is limited to the life of the owner.

For C Corporation, to the extent that a distribution is made from corporate earnings and profits (E & P), the shareholder is deemed to receive a dividend, which is taxed either as ordinary income or as preferentially taxed dividend income. Generally, corporate distributions are presumed to be paid out of E & P and are treated as dividends unless the parties to the transaction can show otherwise. Distributions not treated as dividend are nontaxable to the extent of the shareholder’s stock basis, which is reduced accordingly. The excess of the distribution over the

The investor or partner’s liability is limited to the amount they have invested in the company. This setup typically prevents each partner from being held accountability for the wrongdoings of another partner. Limited liability partnership can be used in many fields, it is commonly used in law or accounting firms. The laws relating to an LLP differ significantly from state to state, and between countries. A limited liability partnership is a business structure designed for partners who want an equal voice in managing their business, but not an equal share of the liability. A partner in an LLP is not responsible for the debts or liabilities of the other partners. This makes the LLP a popular choice for professional service organizations such as accounting, architecture, or law firms. An LLP is a form of ownership in which all the partners receive limited liability protection. An LLP is similar to a general partnership in that all the partners can take an active role in managing the day-to-day affairs of the business.

The tax on a company’s profits which is the difference between the company’s gross income and its business costs is thus called the corporation tax. Now it may appear that as the tax is on the profits of the

A Corporation generally is the most common structure. In this case, the company will be a separate legal entity and owned by shareholders. The company may have an unlimited number of members and shareholders are protected by trade creditors. One advantage is the personal assets of the company are protected from debt or obligation of the company. The disadvantage of the General Corporation is how expensive it is made up of companies and partnerships ("different types of businesses: advantages / disadvantages of Enterprise" (1998-2011)).

The corporation is ruled by the internal revenue Code where Subchapter C is the C Corporation and Subchapter S is the S corporation. Income on C Corporation is subject to double taxation; thus, the dividend distribution is not deductible by corporation. All corporations receive dividend where they treat them as ordinary income. Ordinary income can be allowed as dividend payment deduction. The tax treatment of dividend differs in corporation depending on the types of entity. According to the Internal Revenue Code § 316 “the term dividend means any distribution of property made by a corporation to its shareholders-out of its earnings and profits accumulated after February 28, 1913.” However, there are many different types of dividend such as Qualified Dividends, Property Dividends and Constructive Dividends.

Currently, as of January 1st 2011, dividends will be taxed at the personal income rate rather than the qualified dividend rate. It should be noted that dividends are distributed after the government has already been allocated its 35 percent corporate tax

This drive is the essence of the competition, which is a component on the market that regulates price and quality. If an organization offers a product or service that is needed, there will be demand for it, and other providers will appear to find business opportunities, the more providers are the more options for the buyer are available, at the same time, organizations can present their products or services with attractive prices, overriding the other suppliers and bringing the buyer a better price for the same product. However, costs can be cut down only to a certain extent before lowering quality, therefore there is always this constant element in the markets: there is demand, there

Financial – owner has access to significant financial resources and strong cash flow is being realised from the operation.

India follows the "classical system," under which corporate income is taxed both to the corporation and upon distribution to the shareholders as dividends. However, dividends received by one domestic company from another domestic company are not taxed in the hands of the recipient company to the extent it distributes the dividends to its shareholders within the time allowed for filing its tax return.