2. Types of Business Ownership
Chapter 7
Types of Business Ownership
Sole Proprietorships and Partnerships
7.1
Corporations
7.2

3. Discuss the sole proprietorship legal form.
7.1
Discuss the sole proprietorship legal form.
Explain the partnership legal form.
Section 7.1 Sole Proprietorships and Partnerships

4. 7.1
Entrepreneurs need to understand the advantages and disadvantages of various forms of business ownership so they can choose the most appropriate form for their business.
Section 7.1 Sole Proprietorships and Partnerships

5. sole proprietorship liability protection unlimited liability
7.1
sole proprietorship
liability protection
unlimited liability
partnership
general partner
limited partner
Section 7.1 Sole Proprietorships and Partnerships

6. 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
Section 7.1 Sole Proprietorships and Partnerships

7. Sole Proprietorship The owner of a sole proprietorship:
receives the profits
incurs any losses
is liable for the debts of the business
Section 7.1 Sole Proprietorships and Partnerships

8. 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
Section 7.1 Sole Proprietorships and Partnerships

9. Sole Proprietorship 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 personal rate of owner.
Section 7.1 Sole Proprietorships and Partnerships 9

10. Sole Proprietorship Disadvantages The owner has unlimited liability.
Raising capital is more difficult.
The business is totally reliant on skills and abilities of owner.
The death of owner dissolves the business unless there is a will to the contrary.
Section 7.1 Sole Proprietorships and Partnerships 10

11. 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
Section 7.1 Sole Proprietorships and Partnerships

12. Partnerships
A partnership draws on skills, knowledge, and financial resources or more than one person.
partnership an unincorporated business with two or more owners who share the decisions, assets, liabilities, and profits
Section 7.1 Sole Proprietorships and Partnerships

13. General Versus Limited Partners
The law requires that all partnerships have at least one general partner.
general partner a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business
A partnership may be set up so that all of the partners are general partners.
Section 7.1 Sole Proprietorships and Partnerships

14. 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
Section 7.1 Sole Proprietorships and Partnerships

15. Partnerships Advantages Partnerships are inexpensive to create.
General partners have complete control.
Partners can share ideas.
Partners can share ideas and secure investment capital more easily and in greater amounts.
Section 7.1 Sole Proprietorships and Partnerships 15

16. Partnerships 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.
Section 7.1 Sole Proprietorships and Partnerships 16

17. Making Partnerships Work
Share responsibilities
Put things in writing
Be honest on how the business is doing
Section 7.1 Sole Proprietorships and Partnerships

18. Discuss the advantages and disadvantages of a C-corporation
7.2
Explain how the corporate form gives owners more protection from liability.
Discuss the advantages and disadvantages of a C-corporation
Describe a Subchapter S corporation.
Compare nonprofit corporations to C-corporations.
Explain the limited liability company.
Discuss how to decide which legal form to use.
Section 7.2 Corporations

19. 7.2
In a corporation, the owners of the business are protected from liability for the actions of the company.
Section 7.2 Corporations

20. Subchapter S corporation limited liability company (LLC)
7.2
corporation
C-corporation
shareholders
limited liability
Subchapter S corporation
limited liability company (LLC)
nonprofit corporation
Section 7.2 Corporations

21. What Is a Corporation? There are three types of corporations:
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
C-corporation
Subchapter S corporation
nonprofit corporation
Section 7.2 Corporations

22. 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
Section 7.2 Corporations

23. C-Corporation
In smaller corporations, the founders generally are the major shareholders.
shareholders an owner of shares of stock in a corporation
Section 7.2 Corporations

24. ability to raise investment money
C-Corporation
Advantages
status
limited liability
ability to raise investment money
perpetual existence
employee benefits
tax advantages
Section 7.2 Corporations 24

25. 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 the individual investment
Section 7.2 Corporations

26. C-Corporation Disadvantages expensive to set up
income is more heavily taxed
subject to double taxation on income
pays taxes on profits
stockholders pay taxes on dividends
Section 7.2 Corporations 26

27. 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
Section 7.2 Corporations

28. Nonprofit Corporation
A nonprofit corporation must fall within one of four categories:
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
religion
charity
public benefit
mutual benefit
Section 7.2 Corporations

29. 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 avoids some restrictions associated with Subchapter S corporations
Section 7.2 Corporations

30. Making the Decision
Before deciding on a legal form, ask yourself key questions about:
your skills
capital
expenses
willingness to assume liability
level of control wanted
length of time you expect to own the business
Section 7.2 Corporations

31. Entry Level E-Commerce
Big companies can afford to spend millions of dollars developing their e-commerce sites.
However, there are ways that allow small businesses to ease into e-commerce at a slower, less-expensive pace.
Section 7.2 Corporations 31