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Quote of the Day “Business underlies everything in our national life, including our spiritual life. Witness the fact that in the Lord’s Prayer, the first petition is for daily bread. No one can worship God or love his neighbor on an empty stomach.” Woodrow Wilson, United States president

Sole Proprietorships  A sole proprietorship is an unincorporated business owned by one person.  Sole proprietorships are easy and inexpensive to create and operate.  Earnings are reported on the owner’s personal tax returns.

General Partnership  A partnership is an unincorporated association of two or more co-owners who carry on a business for profit.  Each partner is a general partner.  Partnerships are easy to form (so easy that sometimes it happens unintentionally!)  Partners can be held personally liable for the partnership actions and debts.

Professional Corporations  Most states let professional incorporate.  In many states, PCs provide more liability protection than a partnership.  The corporation may be liable for an individual member’s mistakes, but the innocent professionals are not at risk.

Limited Partnerships  Have both general (active) and limited (money-only) partners.  In a limited partnership, only the general partners are personally liable.  In a limited liability limited partnership, the general partner is not personally liable for the debts of the partnership.  Formation of limited partnerships require a filed certificate of limited partnership.

Corporations  Corporations offer limited liability – usually the managers’ and investors’ personal property is not at risk.  Corporate stock can be bought and sold, making investments easy to get.  Corporations involve a lot of expense and effort to create and operate.

Close Corporations  “Close corporation” and “closely held corporation” refer to a corporation whose stock is not publicly traded on a stock exchange.  Common provisions of close corporations: Protection of Minority Shareholders Transfer Restrictions Flexibility Dispute Resolution

“S” Corporations  Shareholders of S corps have the best of all worlds: the limited liability of a corporation and the tax status of a partnership.  The disadvantages of an S corp are: There can only be one class of stocks. There can be only 75 shareholders. Shareholders cannot be partnerships or other corporations. Shareholders must be U.S. citizens.

Limited Liability Companies  An LLC offers the limited liability of a corporation and the tax status of a partnership, without the disadvantages of an S corporation.  The LLC is popular because it has: Limited Liability, Favorable Tax Status, Duration, Management, Flexibility  The biggest disadvantage with LLC is the legal uncertainty involved since it is a fairly new type of business. State laws vary, and case precedents are few.

Limited Liability Partnerships (LLPs)  Partners in an LLP are not personally liable for debts of the partnership (whether arising from contract or tort).

Joint Venture  A joint venture is a partnership for a limited purpose.  Nonprofit enterprises do not qualify as a joint venture.

Other Forms of Organization  A business trust is an unincorporated association run by trustees for the benefit of investors (who are called “beneficiaries”).  Cooperatives are groups of individuals or businesses that join together to gain the advantages of volume purchases or sales.

Franchises  Are not actually a separate form of business – they can take almost any one of the ones discussed already. Franchising is a popular method of starting a business that is a compromise between employment and starting your own business. Franchisees have freedom to make many choices, but are limited in other ways.

“No one form of organization is right for every business. The proper choice depends upon factors such as sources of financing, tax issues, liability concerns, and the entrepreneur’s goals.” “No one form of organization is right for every business. The proper choice depends upon factors such as sources of financing, tax issues, liability concerns, and the entrepreneur’s goals.”