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Selecting A Form of Business Ownership

Selecting A Form of Business Ownership. 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

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Selecting A Form of Business Ownership

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  1. Selecting A Form of Business Ownership

  2. Considerations • Cost / Complexity • Tax Liability • Legal Liability • Ownership / Management

  3. Sole Proprietorship Definition: • A business that is owned and operated by one person.

  4. 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

  5. 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

  6. 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.

  7. Partnership Definition: • A unincorporated business with two or more owners.

  8. 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

  9. Partnership Disadvantages: • Owners have unlimited liability • Profits must be divided • Disagreements can occur

  10. Partnership Examples • Simple, low risk businesses that have two or more owners

  11. Partnership Agreement Details: • Names, investments • How profits and losses will be handled • Authority and responsibilities • How business will be dissolved

  12. Corporation (Inc) Definition: • A business registered by a state and operates as it’s own entity that pays taxes on profits.

  13. Corporation Advantages: • Limited Liability – owners are responsible only up to the amount they invested. • Able to raise funds by selling stock

  14. 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

  15. Corporation Examples Many of the big businesses you see.

  16. Limited Liability Company (LLC) Definition: • A business registered by a state and operates as it’s own entity and receives tax benefits.

  17. 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

  18. Limited Liability Company (LLC) Disadvantages: • Cant sell stocks • Around $500 to set-up

  19. Limited Liability Company (LLC)Examples • Many small business with more than one owner that are not in need of outside investing.

  20. Nonprofit Corporation Definition • Legal entity that makes money for reasons other then the owners profit. • Profits must remain in company

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