1. Forms of Business Chapters 27 & 28 Sole Proprietorship Partnership Corporation

2. Chapter 27: Sole Proprietorship Owned & operated by 1 person Most common type of business Easiest to form Can use a fictitious name (a name that is not the owners own name) ▫Can not be a name already in use

3. Chapter 27: Sole Proprietorship Steps before starting a Sole Proprietorship: ▫Obtain a license ▫Get liability insurance ▫Formally file your company

4. Chapter 27: Sole Proprietorship Advantages ▫Ease of creation ▫Total control ▫Retention of profits ▫Freedom from excessive government control ▫Taxed just once on profits

5. Chapter 27: Sole Proprietorship Ease of Creation ▫The only thing you really need to begin a sole proprietorship is to begin operating the business ▫Still need to check zoning regulations ▫Still need to research govt. licensing requirements ▫Must contact IRS when hiring workers to get an employer identification number (EIN)

6. Chapter 27: Sole Proprietorship Total Control ▫All decisions are up to the sole proprietor ▫Can still seek advice (accounting, attorney, etc).

7. Chapter 27: Sole Proprietorship Retention of Profits ▫Means the owner keeps all of the profits the company makes ▫Must still pay taxes on any profits

8. Chapter 27: Sole Proprietorship Freedom from Too Much Government ▫Less paperwork is required by govt. than with other forms of business ▫More flexibility with this form of business

9. Chapter 27: Sole Proprietorship Taxation ▫Pay taxes on their INCOME not as a business ▫All profits are considered income for the sole owner of the company. ▫S.P.’s are taxed just once on this income

10. Chapter 27: Sole Proprietorship Disadvantages ▫Limited Capital ▫Unlimited Liability ▫Limited human resources ▫Limited Lifetime

11. Chapter 27: Sole Proprietorship Limited Capital ▫Capital is $$ used to finance the business ▫Comes from S.P.’s savings or income ▫Comes from loans received by S.P.

12. Chapter 27: Sole Proprietorship Unlimited Liability ▫Means the business owner is responsible for all losses experienced by business

13. Chapter 27: Sole Proprietorship Limited Human Resources ▫Typically have few employees ▫Causes lots of stress ▫Need to make decisions outside of their own expertise

14. Chapter 27: Sole Proprietorship Limited Lifetime ▫The company lives only as long as the proprietor ▫If a proprietor dies or sells business the company no longer exists (becomes a new company)

15. Chapter 27: Partnership Owned & operated by 1 person Most common type of business Easiest to form Can use a fictitious name (a name that is not the owners own name) ▫Can not be a name already in use

16. Forms of Business Chapter 27: Partnerships

17. Partnership Law created by the Uniform Partnership Act Partnership – an association of 2+ people to carry on a business for profit 4 advantages ▫More capital available ▫More credit available ▫Lighter burden of work ▫Partner does not have sole responsibility for loss

18. Chapter 27: Partnerships FORMING A GENERAL PARTNERSHIP General partnership is when 2+ parties combine their $, labor & skills to carry on a legal business ▫3 ways to form:  By agreement  By proof of existence  By estoppel

19. Chapter 27: Partnerships By agreement ▫All parties must give agreement/consent to form biz ▫Can be a written or oral agreement (contract!!!)  If it will last more than a year it must be in writing  Any partnership that is formed to sell, buy or lease real property must also be in writing

20. Chapter 27: Partnerships By agreement ▫Articles of Partnership is the partnership agreement or written agreement and includes:  Who agrees  Specific purpose, nature, scope and limits of the biz  Planned duration (lifetime) of the biz  Amount of $ of each partner’s original investment  Provisions regarding salaries, removing funds & splitting of profits  Terms of withdrawal from partnership

21. Chapter 27: Partnerships By Proof of Agreement ▫This simply means that the way 2+ people conduct their business demonstrates that it is a partnership  2 things that must exist:  Sharing of profits  Conducting business together  5 exceptions to the rule:  Repayment of debt  Wages to an employee / or rent  Annuity to the widow/widower of deceased partner  Interest on a loan  Consideration for the sale of the biz

22. Chapter 27: Partnerships By Estoppel ▫Created when someone does/says something leading a 3 rd party to believe a partnership exists & is treated so by the court ▫This is not a real partnership  but is used by the court to prevent injustice

23. Types of Partners Type of PartnerParticipation in Business Relationship to the Public Degree of Liability GeneralActiveKnownUnlimited Liability SecretActiveUnknownUnlimited Liability SilentNot activeKnownUnlimited Liability DormantNot activeUnknownUnlimited Liability LimitedNot activeKnownLimited Liability Every partnership must have at least 1 general partner

24. Chapter 27: Partnerships TYPES OF PARTNERS ▫A secret partner is also a general partner and has an active role in the business but their connection to the business is secret (not known to the public) ▫A silent partner is a general partner who has no active role in the management of the business ▫A dormant partner is a combination of secret & silent. They have no active role & are unknown to public.

25. Chapter 27: Partnerships Partnership Property ▫Property of the partnerships is separate from that owned by the business (unlike sole proprietorship) ▫Property is considered owned by the biz if:  Property contributed directly to biz when it was created  Property was bought with partnership funds 3 Property rights of Partners ▫Right to use the property ▫Right to manage the firm ▫Right to share in the profits

26. Chapter 27: Partnerships Making Decisions in a Partnership ▫Any disagreement that arises is settled by the majority. ▫If there is an even # of partners and the vote is split then there is no decision. EXCEPTIONS ▫When a new partner is to be admitted the vote is unanimous. ▫When a change to the essential nature of the business is made the vote must also be unanimous

27. Chapter 27: Partnerships Sharing Profits Partners share equally in profits There is no consideration of initial capital (investment) contributed by each partner There is no consideration of the time put in by each partner (this right is passed on to relatives of partner upon death)

28. Chapter 27: Partnerships Liability Partners share equally in losses! Joint Liability means in the event of a lawsuit all partners must be sued together THIS IS THE **BIGGEST DISADVANTAGE** Even personal property/assets can be taken should debts be owed. Even an innocent partner can be held responsible. EXCEPTION: Limited Liability Partner

29. Chapter 27: Partnerships Dissolving A Partnership Dissolution is legal detachment (partnerships it is a change in the relationships of the partners) NOT the same as a termination/ending of a business Partnerships end by: ▫Death of a partner ▫Voluntary withdrawal of a partner ▫Court decree ▫When 1 partner stops association with the biz