Considerations • Cost / Complexity • Tax Liability • Legal Liability • Ownership / Management
Sole Proprietorship Definition: • A business that is owned and operated by one person.
Sole Proprietorship Advantages: • Very easy and cheap to create • Business pays no taxes only the owner does (personal income tax) • Owner receives all profits and makes all decisions
Sole Proprietorship Disadvantages: • Owner has unlimited liability • Full responsibility for all debt and actions of the business. • Owner’s personal assets (cars, home, savings) are at risk!!!!! • Limited skills, expertise, and funding
Sole Proprietorship Examples • Part-time businesses that are not risky. • E.G. Grandma’s sweater making • Any business can, in theory, be a sole proprietorship.
Partnership Definition: • A unincorporated business with two or more owners.
Partnership Advantages: • Easy and cheap to create • Business pays no taxes only the owners do (personal income tax) • More ideas/knowledge • More start-up money
Partnership Disadvantages: • Owners have unlimited liability • Profits must be divided • Disagreements can occur
Partnership Examples • Simple, low risk businesses that have two or more owners
Partnership Agreement Details: • Names, investments • How profits and losses will be handled • Authority and responsibilities • How business will be dissolved
Corporation (Inc) Definition: • A business registered by a state and operates as it’s own entity that pays taxes on profits.
Corporation Advantages: • Limited Liability – owners are responsible only up to the amount they invested. • Able to raise funds by selling stock
Corporation Disadvantages: • Expensive to set-up ($500-$2,500) • Need Articles of Incorporation & bylaws • Extensive record keeping • Double taxation • Corporate Profits and owners income are both taxed
Corporation Examples Many of the big businesses you see.
Limited Liability Company (LLC) Definition: • A business registered by a state and operates as it’s own entity and receives tax benefits.
Limited Liability Company (LLC) Advantages: • Simpler to set-up than a corporation • Limited liability for owners • Not subject to double taxation • Owners only pay taxes once
Limited Liability Company (LLC) Disadvantages: • Cant sell stocks • Around $500 to set-up
Limited Liability Company (LLC)Examples • Many small business with more than one owner that are not in need of outside investing.
Nonprofit Corporation Definition • Legal entity that makes money for reasons other then the owners profit. • Profits must remain in company