Bahamian economy
... still relatively easy. It is a good idea to have an attorney draft a formal partnership agreement to protect the interests of all partners involved. There are two types of partnerships, general and limited, which differ mainly in the degree of personal liability assumed by their owners. General Partnership. A general partnership has two or more owners who, usually, are all actively involved in operating the business. Each owner is personally liable for all of the business’s obligations. A well-drawn partnership agreement can include provisions to continue the business (if this is desired) after an individual partner’s death, retirement or other departure. The partnership agreement may include buy/sell provisions to set the terms by which surviving owners will buy out a departing owner’s stake, or these terms may be set in a separate buy/sell agreement. Regardless, all multi-owner businesses (including partnerships, corporations and limited liability companies) should consider both the terms of a buy/sell agreement and the funding of that agreement. Life and disability insurance often use to provide cash when needed to implement a buy/sell agreement. Limited Partnership. A limited partnership also has one or more general partners who run the business. However, the other owners are limited partners who solely invest capital in the business and partake in its profits. They do not participate in managing the business. More important, their potential losses are limited to the amount of their capital contributions. The business’s creditors cannot seek a limited partner’s personal assets to settle partnership debts. The partnership agreement can be constructed to avoid dissolution upon the death or in competency of one of the general partners. A limited partnership structure is most appropriate for active owners who want to maintain control of the business, but who seek capital infusions from outside investors. C Corporation. C corporations also limit the owners’ liability to the amount of their investment in the company. A regular corporation issues shares of stock to its owners. To raise capital, the corporation can sell undistributed shares. This entity is suitable for business owners who intend to take their company public or sell the company in the future. In addition, an existing shareholder can sell his or her shares to another owner without any disruption to the business if he or she decides to part ways with the company. However, setting up a corporation involves some expense. You should hire an attorney to draft various corporate documents, such as corporate by-laws and articles of incorporation. A corporation is required to hold formal annual directors’ meetings. Double taxation, as discussed below, is a potential drawback of this corporate structure. Also, business losses, which are often incurred during the first few years the company is in business, do not flow through to the shareholders to be claimed on their individual tax returns, unlike other structures discussed here. S Corporation. An S corporation is simply a regular corporation that qualifies to receive, and chooses to receive, more favorable tax treatment similar to that of a partnership. To become an S corporation, a qualifying corporation must file Form 2553, Election by a Small Business Corporation, with the IRS. Some states require a similar filing. To be eligible to elect S status a corporation must meet the following requirements: • Have a maximum of 75 shareholders. • Have only shareholders who are U.S. citizens or permanent resident aliens; non-resident aliens are not allowed. Certain trusts and charities are allowed to be S shareholders, as well. • Must only issue one class of stock. • Must not have passive investment income that exceeds 25% of gross income. The cost of establishing an S corporation is similar to that of a C corporation. An S corporation is also required to observe the formalities of a regular corporation, such as holding annual meetings. Limited Liability Company. A limited liability company is the most flexible of all business entities. Today, many small business owners are drawn to this structure because it provides personal liability protection as well as the flexibility to be treated as a sole proprietorship (single-member LLCs only), a partnership or a regular corporation for tax purposes. The owners are referred to as members. Ownership interests can be transferred to a new member, though this is often restricted in the company’s organizing documents or through buy/sell agreements. Setting up an LLC can be as costly as establishing a corporation, but the additional benefits that this structure provides can make it worth the expense, depending on your needs. In a developing economy, small-scale industries play a significant role in economic development of the country. These industries mostly represent a stage in economic transition from traditional to modern technology. The variation in transitional nature of this process reflects in the diversity of these enterprises. Most of the small enterprises use simple skills and machinery. Besides playing economic role for the country, small enterprises because of their unique economic and organizational characteristics also play social and political role in employment creation, balanced regional development, and income generation and in helping to promote change in a gradual and peaceful manner. Development of entrepreneurship in small-scale sector is the only alternative to the problems that require immediate solutions, dispersal of industrial units, meet the massive unemployment problem, a more equitable distribution of the national income, mobilization of local resources and capital, which might otherwise go unutilized and rejuvenate the depressed state of economy. While one cannot help but feel sorry for the families of the owners of small businesses, and indeed the owners themselves, the loss of “Mom & Pop” businesses is simply a part of, or a facet, if you will, of the overall evolution of the way Bahamians, and indeed the rest of the world, does business. It is sad to see people resisting the spread of larger businesses and simply dismissing all of them as “evil conglomerates” that serve no purpose but to dehumanize through greedy practices. Large businesses, like Solomon’s are superior to “Mom and Pop” stores in many ways, for example: their vast selection and substantially discounted price. When a large business moves in, it provides new opportunities. The inclusion of a Solomon’s into a small town can mean employment for those difficult to employ, like the elderly, disabled, and under qualified. It can mean new ...