Entrepreneurship Ownership Types

Sole Proprietorship A business owned and operated by one person 70% of US businesses are operated by sole proprietors ◦ADVANTAGES ◦Relatively easy to start ◦All decisions made by owner ◦Taxed less than other forms of business ◦More freedom from government regulation

Sole Proprietorship ◦DISADVANTAGES ◦Responsible for all debts or legal judgements ◦If debts exceed assets, creditors can claim all personal assets (home, car, savings) – called unlimited liability

Partnership Legal agreement between two or more people Least common – about 10% of businesses Profits usually divided in equal proportions according to the amount of time and money invested Examples: real estate agencies, law offices, medical offices TWO TYPES – General & Limited Limited – Each limited partner is liable for any debts ONLY up to the amount of his/her investment in the company Every limited partnership must have at least one partner with unlimited liability Limited partners have no voice in management

Partnership Advantages & Disadvantages ◦ADVANTAGES ◦Less regulation and taxing than a corporation ◦Fairly easy to establish ◦Combination of skills & capital ◦DISADVANTAGES ◦Unlimited liability ◦Profits taxed as personal income ◦Disagreements – responsible for partner’s acts ◦Death/Withdrawal ends partnership

Corporation Chartered by a state and legally operates apart from the owner(s) Any size – but usually larger People who work for corporation are not necessarily owners – stockholders are owners Governed by boards who hire directors and officers to manage the business in the interest of the stockholders

Corporation (cont) Stockholders have limited liability – only liable to the extent of his/her investment ◦DISADVANTAGES ◦Greater government regulation ◦Complexity of forming it ◦Higher taxes on profits and stockholders ◦Intricate accounting/record keeping ◦ADVANTAGES ◦Easier to raise money for expansion ◦People can easily buy/sell stock to enter or leave organization ◦Can hire experts in management

S Corporation Separate and distinct from the corporation’s owners (stockholders) Can only issue one class of stock Maximum number of eligible stockholders is 75

Subchapter S Corporation AKA “Sub S” Corporation Small business taxed like a partnership or proprietorship Provisions: no more than 35 shareholders Must be incorporated in the US No more than 20% of its gross revenues from investment income No more than 80% of its gross revenues from foreign sources

LLC – Limited Liability Corporation Can be a sole proprietorship, partnership or corporation A form of business ownership where the liability is limited to an investor's original capital investment, as opposed to a general partnership under which the partner or owner has unlimited liability.

LLP – Limited Liability Partnership A form of organization in which the individual partners are protected from the liabilities of the other partners. Generally, the partners are not responsible for the debts, obligations, or liabilities of the partnership resulting from the actions or negligence of another partner.