Types of Business Ownership Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships Corporations 7.1 Section 7.2 Section 7 7

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Discuss the sole proprietorship legal form. Identify the partnership legal form. Section Objectives

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Entrepreneurs need to understand the advantages and disadvantages of various types of businesses so that they can choose the one that best suits their needs. The Main Idea

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Content Vocabulary sole proprietorship liability protection unlimited liability partnership general partner limited partner

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Sole Proprietorship The easiest and most popular form of business ownership is the sole proprietorship. sole proprietorship a business that is owned and operated by one person

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership The owner of a sole proprietorship: receives the profits, incurs any losses, and is liable for the debts of the business. Sole Proprietorship

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Sole Proprietorship In a sole proprietorship the owner must decide how much liability protection he or she needs. liability protection insurance against the debts and actions of a business

Sole Proprietorship 8 Advantages Sole proprietorship is easy and inexpensive to create. The owner has complete authority over all business activities. It is the least regulated form of business ownership. The business pays no taxes; income is taxed at the personal rate of the owner.

Sole Proprietorship 9 Disadvantages The owner has unlimited liability. Raising capital is more difficult. The business is totally reliant on the skills and abilities of the owner. The death of owner dissolves the business unless there is a will to the contrary.

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Disadvantages The biggest disadvantage of a sole proprietorship is financial. In this form of business ownership, the owner has unlimited liability. unlimited liability full responsibility for all debts and actions of a business

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Partnerships A partnership draws on the skills, knowledge, and financial resources of more than one person. partnership an unincorporated business with two or more owners who share the decisions, assets, liabilities, and profits

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership General versus Limited Partners The law requires that all partnerships have at least one general partner. A partnership may be set up so that all of the partners are general partners. general partner a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership General versus Limited Partners Some partnerships include a limited partner. limited partner a partner in a business whose liability is limited to his or her investment; a limited partner cannot be actively involved in managing the business

Partnerships 14 Advantages Partnerships are inexpensive to create. General partners have complete control. Partners can share ideas. Partners can secure investment capital more easily and in greater amounts.

Partnerships 15 Disadvantages It is difficult to dissolve one partner’s interest without dissolving the partnership. There may be personality conflicts. Partners can be held liable for each others’ actions.

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership After You Read 1.Discuss the sole proprietorship legal form. Sole proprietorship is the easiest and most popular form of business to create. The owner receives the profits, incurs any losses, and is liable for the debts of the business.

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership After You Read 2.Explain the partnership legal form. A partnership is an unincorporated business with two or more owners. The partners share the decisions, assets, liabilities, and profits. The partnership can draw on the skills, knowledge, and financial resources of more than one person, which is an advantage when seeking loans.

Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships SECTION SECTION 7.1 Chapter 7 Types of Business Ownership Quiz 10/27/14 1.What is a DBA, and which businesses need one? 2.Why is the sole proprietorship the most poplar business form? 3.What are the financial advantages of a sole proprietorship? What are the financial disadvantages?

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Explain how the corporate form gives owners more protection from liability. List the advantages and disadvantages of a C-corporation. Describe the purpose of a Subchapter S corporation. Compare nonprofit corporations to C-corporations. Define the limited liability company. Discuss how to decide which legal form to use. Section Objectives

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership In a corporation, the owners of the business are protected from liability for the actions of the company. The Main Idea

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Content Vocabulary corporation C-corporation shareholders limited liability Subchapter S corporation nonprofit corporation limited liability company (LLC)

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership What Is a Corporation? There are three types of corporations: C-corporation Subchapter S corporation nonprofit corporation corporation a business that is registered by a state and operates apart from its owners; it issues shares of stock and lives on after the owners have sold their interest or passed away

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership C-Corporation A C-corporation is the most common corporate form. C-corporation an entity that pays taxes on earnings; its shareholders pay taxes as well

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership C-Corporation In smaller corporations, the founders generally are the major shareholders. shareholders the owners of a corporation

C-Corporation 25 Advantages status limited liability ability to raise investment money perpetual existence employee benefits tax advantages

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Advantages Corporate shareholders have limited liability, but some banks require officers to personally guarantee the debts of the company. limited liability partial responsibility of a corporate shareholder; he or she is responsible only up to the amount of his or her individual investment

C-Corporation 27 Disadvantages expensive to set up income more heavily taxed subject to double taxation on income pays taxes on profits stockholders taxed on dividends

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Subchapter S Corporation An entrepreneur can avoid the double taxation of a C-corporation by setting up a Subchapter S corporation. subchapter S corporation a corporation that is taxed like a partnership; profits are taxed only once at the shareholder’s personal tax rate

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Nonprofit Corporation A nonprofit corporation must fall within one of four categories: religion charity public benefit mutual benefit nonprofit corporation a legal entity that makes money for reasons other than the owner’s profit; it can make a profit, but the profit must remain within the company

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Limited Liability Company There are many benefits to forming a limited liability company (LLC). limited liability company (LLC) a company whose owners and managers have limited liability and some tax benefits, but which avoids some restrictions associated with Subchapter S corporations

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership Before deciding on a legal form, ask yourself key questions about: your skills access to capital expenses willingness to assume liability level of control wanted length of time you expect to own the business Making the Decision

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 1.Explain how the corporate form gives owners more protection from liability. A corporation offers limited liability. In other words, shareholders are liable only up to the amount of their individual investments.

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 2.Discuss the advantages and disadvantages of a C- corporation. Advantages: A corporation has a more professional appearance, its shareholders are liable only up to the amount of their individual investment, it can raise money by issuing shares of stock, it has perpetual existence, it is structured to accommodate employee benefits, and it has tax advantages. Disadvantages: A corporation is expensive to set up and its income is more heavily taxed.

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 3.Describe a Subchapter S corporation. The Subchapter S corporation is taxed like a partnership; profits are taxed only once at the shareholder’s personal tax rate. Therefore, the Subchapter S corporation is not a tax-paying entity. Generally, it can have no more than 75 stockholders, who must be U.S. citizens. It can have only one class of stock.

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 4.Compare nonprofit corporations to C-corporations. Nonprofit corporations can make a profit, but the profit must remain within the companies and not be distributed to shareholders. Any type of business can be a corporation, but a nonprofit must be formed for religious or charitable purposes, public benefit, or mutual benefit. A C-corporation is created to make a profit for its owners, or shareholders.

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 5.Explain the limited liability company. The limited liability company protects owners with the limited liability of a corporation. That is, the company’s owners are not liable for its debts. It also provides pass-through tax advantages; shareholders are taxed only once. There are no limitations on the number of members or on their status.

Corporations Glencoe Entrepreneurship: Building a Business SECTION 7.2 Chapter 7 Types of Business Ownership After You Read 6.Discuss how to decide which legal form to use. You should consider your skills, access to capital, living expenses, willingness to assume personal liability for any claims against the business, and control desired. Also, ask yourself: do you expect to have initial losses, or will the business be profitable from the beginning? Do you expect to sell the business someday?

Types of Business Ownership Glencoe Entrepreneurship: Building a Business Sole Proprietorships and Partnerships Corporations 7.1 Section 7.2 Section 7 7 End of Chapter 7 Types of Business Ownership