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Types of Business Ownership

Types of Business Ownership. Sole Proprietorship. Corporation. Partnership. Sole Proprietorship. 76% in U.S. One owner Totally responsible for liability Easy to start. What is liability? Money owed to others (bills, e.g.). Advantages Easy to create Inexpensive to create

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Types of Business Ownership

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  1. Types of Business Ownership Sole Proprietorship Corporation Partnership

  2. Sole Proprietorship • 76% in U.S. • One owner • Totally responsible for liability • Easy to start • What is liability? • Money owed to others (bills, e.g.)

  3. Advantages Easy to create Inexpensive to create Owner gets all profits Least regulated Lower tax rate Disadvantages Unlimited liability More difficult to raise capital All resources rely on the one owner Death results in business dissolution Sole Proprietorship (con’t)

  4. Starting A Sole Proprietorship • Decide on business name • DBA (“Doing Business As”) • Business License • EIN (Employer Identification Number) for tax purposes

  5. What is a Partnership? Simply put: A partnership is a sole proprietorship with more than one owner

  6. Types of Partnerships • General partnerships • Limited partnerships • Joint venture • Strategic alliance

  7. General Partnerships • All have unlimited liability • All take full responsibility • Law requires at least one general partner

  8. Limited Partnerships • Liability limited to amount of investment • Not actively involved in business, or lose limited liability status

  9. Joint Venture • Companies join to complete specific project • Limited to specific period of time • Example: Real estate developer with financial institution

  10. Strategic Alliance • Two businesses work together for mutual benefit. • Example: Manufacturer agrees to produce your product – you don’t have to build a plant; the manufacturer always has your business

  11. Advantages Inexpensive to create General partners have complete control Ability to share ideas Easy to secure capital Disadvantages Business ends if one partner leaves or dies Personality conflicts Each partner held liable for actions of the other Is a partnership right for you?

  12. Corporation Business that is chartered, or registered, by a state.

  13. Types of Corporations • C-Corporation • Subchapter S Corporation • Nonprofit Corporation

  14. C-Corporation • Most common form of corporation • Issuance of stock for ownership • Board of Directors to make policy decisions and to select officers

  15. Advantages Easy to raise capital Liability limited to amount of investment More status Pension and retirement funds Profit-sharing for employees Disadvantages Expensive to set up More heavily taxed Stockholders (investors) must pay taxes on dividends Should you incorporate?

  16. Subchapter S Corporation • Taxed like a sole proprietorship or partnership • Works best with cash businesses – good cash flow • Must show enough taxable profit to cover taxes

  17. Nonprofit Corporation • Legal entities that make money for reasons other than the owners’ profit. • Profit can be made, but… • Profits must remain within the company • Examples: Salvation Army Thrift Store Churches Company-sponsored run/walks for charity Boy Scouts/Girl Scouts of America

  18. Limited Liability Companies (LLC’s) • Limited liability of corporation • Taxed like a partnership • Popular with foreign investors and family-owned businesses. • Check with your state for requirements

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