1. Forms of Business Ownership
Leslie Lum
Bellevue Community College 1

2. Categories of Companies5

3. Sole Proprietorships Advantages Disadvantages Easy to set up Control
Retain all profits
Flexibility
Privacy
Pension benefits
Disadvantages
Typically small business
Limited financial resources
Lack of critical mass
Unlimited liability
Succession problems 6

4. Types of Partnerships
General
Limited
Master Limited 7

5. Partnerships Advantages Disadvantages Easy to form
Taxed at personal rates
Pooling of talents
Easier to get financing
Disadvantages
Unlimited liability
Shared liability
Interpersonal problems
Competition for positions 8

6. Types of Corporations C Corporation S Corporation
Limited Liability Company
Public- government owned for specific use (Freddie Mac?)
quasi-public- Public utilites having monopoly
Private corporation - owned by private individuals
Not-for-profit - PBS, Harvard, American Heart
For-profit -
Publicly traded - actively sell stock on the open market
Not publicly traded - closely held, Hallmark, UPS,
Professional - services
S Corporations - 35 shareholders, not more than 25% income from passive sources
Limited liability - pay taxes like partnership but limited liability
Subsidiary companies -
Parent company
Holding company 9

7. Corporate Structure Shareholders - Individual, institutional
Board of Directors
Officers
Corporate Charter
Stockholder’s rights 10

8. Corporations Advantages Disadvantages Limited liability Liquidity
Access to more sources of financing
Unlimited life
Disadvantages
Reporting requirements
Vulnerability to take-overs
High tax rate
Double taxation to shareholder 11

9. Corporations and Double Taxation
Profits before taxes
$500,000
Sole Proprietor
Gets all of profits
Taxed at individual rate
Partners
Divides profits
Taxed at individual rate
Corporation is taxed
Divides profits
Taxed at individual rate
$500,000
100, % tax
$400,000 total
$500,000 divided by 5 partners = $100,000 each
20,000 20% tax
$ 80,000 each or
$400,000 total
$500,000
-175,000 35% Corporate Tax
$325,000
Divided by 100 shareholders
$3,250
% Personal Dividend Tax
$2, each or
$276,200 total

10. New Business Called Biz.Com
You have three options
Sole proprietorship
Partnership with one other person
Corporation

11. Biz.Com - Your share of Profits is $100,000
Individual tax rate is 20% Corporate tax rate is 35% Dividend tax is 15%
As a sole proprietor how much do you take home after paying the taxman?
As a partner how much do you take home?
As a corporation how much do you take home?

12. Biz.Com - You have a great product idea but nobody else in the company thinks it will work.
As a sole proprietor what happens?
As a partner what happens?
As a corporation what happens?

13. Biz.Com - Someone sues you for $1 million because your product turned their hair green. The company is worth $0.5 million.
As a sole proprietor what happens?
As a partner what happens?
As a corporation what happens?

14. Biz.Com - You want to expand your company by acquiring another company. The other company will cost $2 million.
As a sole proprietor what happens?
As a partner what happens?
As a corporation what happens?

15. Biz.Com - A competitor wants to take you over
As a sole proprietor what happens?
As a partner what happens?
As a corporation what happens?

16. Biz.Com - You want to retire to California.
As a sole proprietor what happens?
As a partner what happens?
As a corporation what happens?