How To Form A Business
S Corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships; paperwork and detail similar to conventional corporations. They have shareholders, directors, and employees, and the benefit of limited liability but profits taxed only as personal income of shareholders. Operating flexibility is a plus.
Home-based franchises
Advantages: Relief from commuting stress Extra family time Low overhead expenses Main Disadvantages: Isolation Long hours
General Partnership
All owners share in operating the business and in assuming liability for the business's debts.
Limited Partner
An owner who invests money in the business but does not have any management responsibility or liability for losses beyond his or her investment
Co-op Advantages
Don't pay the same kind of taxes corporations pay
Limited Life Span
If the sole proprietorship dies/is incapacitated/retires then the business no longer exists (unless passed to heirs)
Disadvantages of a cirecorporationd
Initial cost Extensive paperwork Double taxation
Franchises Disadvantages
Large start-up costs Coattail effects
Limited Liability Partnership (LLP)
Limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision.
Acquisition
One company's purchase of the property and obligations of another company.
Leaving a Legacy
Owners can leave an ongoing business for future generations
Management Difficulties
Sole proprietors struggle to compete with salary and benefits offered by larger companies, therefore they find it difficult to attract qualified employees
Limited Financial Resources
The funds available are limited to what the one owner can gather. Partnerships and corporations have a greater probability of obtaining financial backing needed to start and obtain a business.
Limited Liability
The limited partner's liability for the debts of the business is limited to the amount put into the company aka their personal assets are not at risk
Unlimited Liability
The risk of personal losses; the responsibility of business for all of the debts of the business.
Merger
Two individual businesses that combine to form one organization
Few fringe benefits
Working for yourself you lose these; no health insurance, no paid disability insurance, no pension plan, no sick leave, no vacation pay. These may add up to 30 percent or more of worker's compensation.
Sole Proprietorship
a business owned and managed by a single individual; all required is the tools, proper licensing if needed, and self advertisement. To get out of business you simply stop.
Partnership
a business owned by two or more people
Corporation
a legal entity with authority to act and have liability apart from its owners; 5 million corporations in the US makeup 20% of all businesses earning 81% of total US business receipts
Conventional (C) Corporation
a state-chartered legal entity with authority to act and have liability separate from its owners- its stockholders
Franchise Agreement
an arrangement whereby someone with a good idea for a business (the franchiser) sells the rights to use the business name and sell a product or service (the franchise) to others (the franchisees) in a given territory; lower failure rate but proceed with caution of weak franchises as a result of their popularity
Leveraged Buyout (LBO)
an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing the necessary funds
General Partner
an owner/partner who has unlimited liability and is active in managing the firm; every partnership must have at least one
Limited Partnership
has one or more general partners and one or more limited partners
Horizontal Merger
joins two firms in the same industry and allows them to diversify or expand their products
Vertical Merger
joins two firms operating in different stages of related businesses
Cooperative (co-op)
owned and controlled by the people who use it - producers, consumers, or workers with similar needs who pool their resources for mutual gain
Conglomerate Merger
unites firms in completely unrelated industries in order to diversify business operations and investments