1. Entrepreneurship Mr Farrar

2. Describe the different forms of business Analyze and propose the best form of business for a desired business opportunity Objectives:

3. How many types of business forms can you name? sole proprietorship Partnership Corporation S Corporation “Sub S” Corporation Limited Liability Corporation Limited Liability Partnership What Are Your Choices

4. Sole Proprietorship A business owned and operated by one person 70% of US businesses are operated by sole proprietors ADVANTAGES Relatively easy to start All decisions made by owner Taxed less than other forms of business More freedom from government regulation

5. Sole Proprietorship DISADVANTAGES Responsible for all debts or legal judgements If debts exceed assets, creditors can claim all personal assets (home, car, savings) – called unlimited liability

6. Partnership Legal agreement between two or more people Least common – about 10% of businesses Profits usually divided in equal proportions according to the amount of time and money invested Examples: real estate agencies, law offices, medical offices TWO TYPES – General & Limited Limited – Each limited partner is liable for any debts ONLY up to the amount of his/her investment in the company Every limited partnership must have at least one partner with unlimited liability Limited partners have no voice in management

7. Partnership Advantages & Disadvantages ADVANTAGES Less regulation and taxing than a corporation Fairly easy to establish Combination of skills & capital DISADVANTAGES Unlimited liability Profits taxed as personal income Disagreements – responsible for partner’s acts Death/Withdrawal ends partnership

8. Corporation Chartered by a state and legally operates apart from the owner(s) Any size – but usually larger People who work for corporation are not necessarily owners – stockholders are owners Governed by boards who hire directors and officers to manage the business in the interest of the stockholders

9. Corporation (cont) Stockholders have limited liability – only liable to the extent of his/her investment DISADVANTAGES Greater government regulation Complexity of forming it Higher taxes on profits and stockholders Intricate accounting/record keeping ADVANTAGES Easier to raise money for expansion People can easily buy/sell stock to enter or leave organization Can hire experts in management

10. S Corporation Separate and distinct from the corporation’s owners (stockholders) Can only issue one class of stock Maximum number of eligible stockholders is 75

11. Subchapter S Corporation AKA “Sub S” Corporation Small business taxed like a partnership or proprietorship Provisions: no more than 35 shareholders Must be incorporated in the US No more than 20% of its gross revenues from investment income No more than 80% of its gross revenues from foreign sources

12. LLC – Limited Liability Corporation Can be a sole proprietorship, partnership or corporation A form of business ownership where the liability is limited to an investor's original capital investment, as opposed to a general partnership under which the partner or owner has unlimited liability.

13. LLP – Limited Liability Partnership A form of organization in which the individual partners are protected from the liabilities of the other partners. Generally, the partners are not responsible for the debts, obligations, or liabilities of the partnership resulting from the actions or negligence of another partner.

14. Three things to keep in mind when choosing a legal form are: 1.Liability 2.Taxes 3.Ownership What to Consider When Deciding

15. Liability: Legally, corporations are individual entities. As such, the corporation -- not individual shareholders -- are responsible for the actions of the business. In other words, if something goes very wrong, and a corporation is sued, only the assets of the corporation are at stake -- not the owners' personal assets. (There are some exceptions to this rule, but generally, your personal liability is GREATLY limited.) 1. Liability

16. Double taxation: No one likes paying taxes, and you certainly don't want to pay taxes twice -- once on income for the business and then again when that income is distributed as profits to you. Instead, look for a legal form that allows for the profits of the company to "pass through" to the owners, without having to pay corporate taxes first. 2. Taxes

17. Ownership: Certain legal business forms limit the number or type of people who can invest in your company. If you're seeking a large number of investors or international investors, find a corporate structure that permits such stockholders. Ownership