1. Entrepreneurship CHAPTER 7 SECTION 2

2.  Corporation – business that is registered by a state and operates apart from its owners. 1.Ownership or equity are represented by shares of stock. 2.Three major types of corporations: ◦C corporation ◦S corporation ◦Nonprofit corporation

3.  C corporation: 1.An entity that pays taxes on earnings. 2.Most common corporate form. 3.Protects entrepreneur from being sued for the actions or debts of the corporation. 4.Shareholders – owners of the corporation 5.Must have a board of directors that makes decisions and selects officers.

4. 6. Advantages: ◦Limited liability (liable only for amount of investment) ◦Ability to raise investment money ◦Perpetual existence (have a continuous life) ◦Employee benefits ◦Tax advantages (deduct certain expenses)

5. 7. Disadvantages: ◦Expensive to set up ◦Income more heavily taxed ◦Subject to double taxation

6.  S corporation – taxed like a partnership 1.Advantages: ◦Profits taxed only once at the shareholder’s tax rate ◦Not a tax paying entity 2.Disadvantages: ◦Have only one class of stock ◦Must have enough cash to pay taxes or owners have to pay out of their personal accounts

7.  Nonprofit organization – legal entity that makes money for reasons other than owners’ profit 1.Benefits a certain cause in the community 2.They can make a profit but it must remain in the company to support their cause and not be distributed among shareholders

8.  Limited liability company (LLC) – owners and managers enjoy limited liability and some tax benefits 1.Avoids some restrictions associated with S corporation 2. Is simpler to set up than a corporation 3. Allows the flexibility of a partnership 4. Protects its owners with the limited liability of a corporation 5.Not subject to double taxation 6.No limitations on the number of members or their status