Business Organization Types Sole Proprietorship, Partnership, Corporation, S-Corporation, Non- Profit

Sole Proprietorship One owner +/- One decision maker Owners are responsible (liable) for company +/- Owner and business are considered one ENTITY (thing) +/- Owner’s money & business’ money are one + If company makes a lot of $ Owner makes a lot -If company loses money or gets sued Owner loses or gets sued ) Business’s profits and 2.) owners pay check are taxed ONLY ONCE Company purchases are TAX DEDUCTIBLE – Subtract the amount spent for company from amount of taxable income

Corporation + Owner and Business are SEPARATE +++++Owner is not PERSONALLY LIABLE for company’s actions  The owner is now protected from the company’s actions by THE CORPORATE VEIL (like a shield that protects the owner from beings personally sued or responsible)  Corporate veil can be PIERCED if it can be proven that owners allowed a problem/disaster to occur -----Money is taxed TWICE 1.Company profits are taxed 2.Each workers wages or pay check are also taxed/Dividends payed to stock owners are taxed Lots of paperwork and somewhat complicated to set up, definitely need to hire a lawyer to help and costs to set up Lots of rules and laws they must follow VERY STRICT, tightly monitored by the government

Tax Deduction Larry’s Lawn Mowers made 100,000 this year – Taxes are roughly 1/3 of Gross Income – So normally Larry would pay 1/3 of 100,000 in taxes, about 33,000 – This year larry spent 40,000 on a sweet new truck to tow his trailer with all his mowers – Larry put a Larry’s Lawn Mower Sticker on his truck and drives it everyday – Larry can DEDUCT (subtract) 40,000 from 100,000 and only pay taxes on what’s now left – So 100,000-40,000 = 60,000 so now larry only has to be 1/3 for taxes on 60,000 instead of on 100,000 – So 1/3 of 60,000 is 20,000 – SO Larry gets the truck he needed and pays 13,000 less in taxes – 40,000 minus what he saved in taxes 13,000 – So 40,000 – 13,000 = 27,000

Partnership Two or more owners Owners decide how to divide up ownership Owner with the majority of ownership has more decision making power Taxed like a Sole Proprietorship ($ taxed once) Tax deductions allowed like sole proprietorship Liability is with the owners according to percentage of ownership

LLC Limited Liability Company best of corp & Soleproprietorhip/partnership BEST FOR SMALL COMPANIES THAT TAKE RISKS AND THAT WANT TO APPEAR MORE PROFESSIONAL Resembles a corporation in many ways The choice to be taxed like a partnership though (ONCE) Easier to set up than a regular corporation Less rules and laws to follow than a corporation Liability is less than a partnership or sole prop Owners are separate from the company Can be formed or set up by just ONE person --- Sometimes charged extra startup fees by state gov. Have to hire a lawyer to set it up for you – But, MUCH easier to set up than a corporation but harder than a sole proprietorship or parntership Can have one or more owners (share holders) Best for companies like Larry’s Lawnmowers who have RISK but not necessary for Veronica’s Vinyl who don’t run a RISKY business