Selecting A Form of Business Ownership

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Presentation transcript:

Selecting A Form of Business Ownership

Considerations Legal Liability Ownership / Management 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 A unincorporated business with two or more owners. 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