©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Legal Forms of Organization Sole proprietorship General partnership Limited partnership Nonprofit corporation C corporation S corporation Limited liability company 12.1 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Sole Proprietorship Advantages Easy to form No legal documents required Income tax on schedule C Profits/losses pass directly to owner Entrepreneur is the boss Disadvantages Unlimited liability Death terminates business Limits ability to raise capital Limits business deductions 12.2 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ General Partnership Issues to consider Money contributions Money distributions Business liabilities Exit, buy-sell agreements 12.3 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Limited Partnership General partner(s) and limited partner(s) General partner(s) have full liability Limited partners Liability debts limited to investment Limited financial obligations Limited say in management May receive favorable tax treatment 12.4 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Limited Liability Company IRS treats like partnership Liability debts limited to investment More flexibility than a corporation 12.5 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Limited Partnership Advantages Limited liability Creates stock Increases ability to raise capital Creates retained earnings Enjoys continual existence Is easier to sell Allows business expenses deductions Disadvantages Double taxation Corporate formation fees Regulations Paperwork 12.6 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ S Corporation Issues only common stock (voting and nonvoting) Eliminates double taxation Requires eligibility Taxed as partnership (federal tax provision) 12.7 © 2004 Ewing Marion Kauffman Foundation

©2001 Kauffman Center for Entrepreneurial LeadershipPLANNING AND GROWING A BUSINESS VENTURE™ ™ Nonprofit Corporation Exempt from federal income tax Prohibited from distributing net income to members, directors, or officers Required to file for status with IRS 12.8 © 2004 Ewing Marion Kauffman Foundation