1. 7.02 - Choose Your Business Structure
BF10: Principles of Business and Finance
Fall 2015

2. Types of business structures
Sole proprietorship
Partnership
Corporation

3. Sole proprietorship
Simplest and most common structure chosen to start a business
Unincorporated business owned and run by one individual
Owner entitled to all profits
Owner responsible for all business’s debts, losses and liabilities

4. Sole proprietorship Advantages: Easy and inexpensive to form
Complete control
Easy tax preparation
Disadvantages:
Unlimited personal liability
Hard to raise money
Heavy burden

5. Partnership Single business where two or more people share ownership
Each partner contributes to money, property, labor, and/or skill
Each partner shares in the profits and losses
Entail more than one person in the decision-making process

6. Partnership Advantages: Easy and Inexpensive
Shared Financial Commitment
Complementary Skills
Partnership Incentives for Employees
Disadvantages:
Joint and Individual Liability
Disagreements Among Partners
Shared Profits

7. Partnership Arrangements
General Partnerships assume that profits, liability and management duties are divided equally among partners
Limited partnerships allow partners to have limited liability as well as limited input with management decisions
Joint Ventures act as general partnership, but for only a limited period of time or for a single project

8. Corporation Independent legal entity owned by shareholders
Have costly administrative fees
Complex tax and legal requirements
Ability to sell ownership shares in the business through stock offerings.

9. Corporation Advantages: Limited Liability Ability to Generate Capital
Corporate Tax Treatment
Attractive to Potential Employees
Disadvantages:
Time and Money
Double Taxing
Additional Paperwork

10. Corporation Types
The C-corporation is the “classic company structure” owned and operated by a number of shareholders based upon its authorized capital
The S-corporation is for small business which enjoys the most number of tax benefits and also offer limited liability protection and reduced taxable gains if the owner sells the business
The LLC structure can best be described as the hybrid between the S and the C corporations and offer limited liability protection as to the actions of the corporate entity