Choose the legal form of your business

1. Choose the legal form of your business Once you decide to start your business, you must decide what type of ownership the business will have. There are 3 types of ownership that you can choose from.

2. Forms of Business Ownership • The Sole Proprietorship • Partnership • Corporation

3. Sole Proprietorship • Owned by 1 person • This person is the boss • This person is liable for everything • The most common form of ownership • Difficult to raise money • You are the only one contributing • The owners private assets are at stake

4. Partnership • 2 or more people partnering together to own a business • The liability is spread amongst the partners • The business is considered a partnership until someone leaves the business • Each partner brings different skills and assets to the business

5. Very little government regulation • Easy to form • Legally reliable for the errors of your partners • Partnerships can lead to disagreements and end bitterly

6. Partnership Agreement When 2 or more partners go into business, they usually sign a partnership agreement. The purpose of the agreement is to legally bind all partners to their rights and responsibilities of the business

7. A typical agreement covers the following: • Name of the partnership • Names of partners • Types and values of their investments • Responsibilities of each person • Accounting methods to be used • Rights of each partner • Division of profits and losses • Salaries of each partner • Duration of the partnership • Conditions of dissolving the partnership • Distribution of the assets if dissolved • How to deal with the death of a partner

8. The Corporation • A special form of business • The owners are not liable, the corporation is. • Owners are called shareholders • A corporation can be private or public • Thousands of employees • Thousands of shareholders (owners) • Can easily raise lots of $$$$$ through sale of shares to investors

9. Disadvantages • Difficult to set up • Plenty of legality when incorporating • Expensive to set up • Much government regulation • Much more paperwork • Taxed twice

10. Your turn! • You have a friend(s) in class who is/are interested in forming a partnership with you. • Create a partnership agreement with your classmate(s) • Complete all 12 sections of a typical partnership agreement • Use the internet to help you find an example of a typical partnership agreement • http://www.smallbusinessnotes.com • Have fun!!