Coach Johnson / Lisa Head Forms of Ownership

3 Types of Ownership Sole Proprietorship Partnership Corporation C-Corporation Subchapter S Corporation Limited Liability Company (LLC)

Sole Proprietorship Overview Owned and Controlled by one person Oldest, simplest, most common 76% Business in United States Examples include: lawyers, plumbers, carpenters, hairstylists, florists, and farmers Advantages? Disadvantages? Owner takes all profits. There are no overhead expenses required in the establishment. It allows for quick and free decision-making. Because there are a limited number of assets to give as security, it is difficult to obtain a loan. It is not easy to acquire good, qualified staff, as there is little to offer them in the way of promotion. Salaries paid to workers are normally lower than the salaries that bigger companies can offer.

Sole Proprietorship Advantages: Easy start up Small Capital and few legal consideration Zoning and Licenses may be required Not difficult to obtain Control Take opportunities, react to troubles Personal satisfaction

Sole Proprietorship Advantages: Profits Stay in house Major decision in choosing this type Taxation Individual not business

Sole Proprietorship Disadvantages: Unlimited Liability Personally responsible for all good and bad Liability Protection?? How much would you need Sole Responsibility All aspects of running business Time, energy, decision making

Sole Proprietorship Disadvantages: Limited Growth Potential Small loan or Savings Difficulty getting loan Collateral House Car More Capital = Expansion

Sole Proprietorship Disadvantages: Longevity Firm/Business life Depends on owns: Health Hard Work Time Effort

Sole Proprietor Activity Name three challenges facing a sole proprietorship Name two legal considerations Name 2 main advantages for being a sole proprietor

Partnerships Owned and Controlled by two or more people Advantages? Disadvantages? Examples include: Doctors, lawyers, accountants, and construction companies

Partnerships Overview General partnerships Enjoy equal decision-making authority Each has unlimited liability Limited Partnership Provide financial capital in exchange for a share of the profits Rarely take an active role in business decisions Liability is limited for some partners

Advantages of Partnerships Easy start up Low costs and few government regulations Partnership contracts Outline responsibilities of each Includes conditions for adding/dropping partners, and dissolving the partnership

Advantages of Partnerships Specialization Each can have different duties Helps realize specific talents Pizza Business Example Shared Decision Making & Loss Minimize the chance of mistakes Secure capital easier than sole Take hit = keep going

Partnership Disadvantages Unlimited Liability Can lose more than you invest Still not a large number of owners, much risk Conflict Difference of opinions Lower morale Delay decisions Affect overall efficiency

Partnership Disadvantages Lack of longevity Willingness and Ability of teamwork Illness Death Conflict

Corporations A corporation – group of owners (stockholders) share profits (and losses) Corporations can own property hire workers make contracts pay taxes sue and be sued make and sell products

Share Holder Stock Holder / Share Holder Owners of the corporation Smaller Companies – Owners Majority Policy Makers

Corporate Advantages Benefits for Stockholders Limited liability (only as much as they invest) Can sell ownership at any time Benefits for Corporations Founders have limited liability Separation of ownership from management Easy to raise capital Longevity

Corporate Disadvantages Corporate Issues Corporate charters expensive and difficult to obtain Federal and state governments regulate corporations Slow decision-making process (idea, discuss, present, vote, act)

Corporate Disadvantages Stockholder Issues Earn profit without actually working for the company Lack of control Shared Issues Corporate profits are TAXED TWICE!! Corporate income Dividend income

C-Corporation Pays taxes on Earnings Shareholders Pay taxes Protection for the owners Certificate of Incorporation

Subchapter S Corporation Taxed like a partnership Lower Tax rate No more than 75 stock holders Must be US citizens Only one class of stock Restaurant – Most common

Nonprofit Corporation Legal entity Operates to generate revenue for other purposes other than the owner’s Can make no profit

Limited Liability Company (LLC) Limited Liability – Owners Tax Benefits Simpler to create Flexibility of a partnership structure Protects Owners No Double Taxation No limitations on the number of members or their status