1. The Entrepreneur’s Options Chapter 19

2. Introduction Entrepreneurs wishing to start a new business must be aware of advantages and disadvantages of various business entities for their endeavor. Consider: –Ease of creation. –Owners’ liability. –Tax considerations. –Need for Capital.

3. Sole Proprietorship Owned by a single person. Owner reports business income and expenses on personal income tax return. Owner is legally responsible for all debts and obligations without limitation.

4. General Partnership Agreement by two or more parties. Purpose is for profit. Not necessarily in writing. Partnership informational tax return - taxes assumed by partners directly. Partners have unlimited liability.

5. Limited Partnership (Ltd. or L.P.) Separate, artificial legal entity At least one General Partner and at least one Limited Partner. Tax liability and benefits assumed by partners directly. General Partner has unlimited liability. Limited Partner has limited liability.

6. Corporation (Inc. or Corp.) Separate, artificial legal entity. Formed in compliance with law. Managed by Directors & Officers. Shareholders have limited liability. Taxed as a separate legal entity (unless an S corporation)

7. “S” Corporations Closely-held corporation (less than 100 Shareholders) Owners generally must be natural persons who are US citizens or residents Taxed like a partnership Limited liability of a corporation.

8. Limited Liability Company (“LLC”) Separate, artificial legal entity. Formed in compliance with law. Shareholders have limited liability. Taxed as a partnership. No limits as to who can be shareholders.

9. Limited Liability Partnership (“LLP”) General Partnership designed for professionals (lawyers, accountants, etc.) Formed in compliance with law. Partners have limited liability for other than their own professional malpractice. Taxed as a partnership.

10. Franchises Owner of trademark, trade name, copyright, license or trade secret licenses its use to another by an agreement in exchange for a fee. Franchisor - grantor of franchise Franchisee - recipient who provides capital and develops business.

11. Franchises Franchisor can control: –location of business –source of materials and supplies –type of business organization of franchisee –nature of advertising

12. Franchises Payments to Franchisor –Initial Deposit or Purchase –Percentage of Gross Revenues’ –Required Purchases of Materials, Supplies and Advertising

13. Franchises Price Controls –Franchisor may suggest prices at which products will be sold. –Franchisor may not mandate prices (violation of antitrust laws).

14. Franchises Termination generally only “for cause” Reasonable notice required Examples include death of franchisee, bankruptcy, default under franchise agreement

15. The Entrepreneur’s Options End of Chapter 19