Chapter 7: Types of Business Ownership

shareholders (stockholders)

ownership in a corporation is represented by shares of stock and the people who own those shares

partnership

An unincorporated business owned by 2 or more owners, the most common business organization involving more than one owner, a legal form of ownership, requires a DBA when the last names are not used in the name of the business

set up a name, DBA (doing business as from the government), if hiring employees: EIN (Employer Identification Number) and Sales Tax ID Number if you are a retailer or vendor

How do you set up a Sole Proprietorship?

status, limited liability, easier to raise capital (sell stock), may appear to be more professional, perpetual existence, can create pension and profit sharing plans, can deduct certain items from reportable income

What are some advantages of a corporation?

profits are taxed only once at shareholder's rate

What are some advantages of a subchapter s corporation?

simpler to set up than a corporation, allows for the flexibility of a partnership structure, protects its owners with the limited liability of a corporation, its members are not liable for the company's debts, not subject to double taxation, profits are only taxed personally, no limitations on the number of members

What are some benefits of an LLC?

expensive to set up, income is heavily taxed

What are some disadvantages of a corporation?

can have no more than 75 stockholders who must be US citizens, can have only one class of stock, if the business shows a large taxable profit but has not generated enough cash to cover the taxes then owners must pay the taxes out of personal earnings

What are some disadvantages of a subchapter s corporation?

share business responsibilities, put things in writing, be honest about how the business is doing, must establish a partnership agreement before the business is started

What are some ways to make a partnership work?

inexpensive to create, general partners have complete control, sharing of ideas and can secure investment capital more easily than a sole proprietorship

What are the advantages of a partnership?

easy and inexpensive to create, owner has complete authority over all business activities, owner receives all profits, least regulated form of business ownership, business pays no taxes because it is not separate from the owner

What are the advantages of a sole proprietorship?

difficult to dissolve one partner's interest without dissolving the partnership (if one partner dies or wants out the partnership ends), personality conflicts, technical disadvantages (partners are bound by the laws of agency - they can be held liable for each other's actions)

What are the disadvantages of a partnership?

owner has unlimited liability, may be limited by its total reliance on the abilities and skills of the owner, the death of the owner automatically dissolves the business unless there is a will stating differently

What are the disadvantages of a sole proprietorship?

a board of directors that makes decisions and selects offers to run the company

What is a corporation required to have?

consider each other's needs before committing to a partnership, must plan for disagreements

What must partners consider and what should they plan for?

sole proprietorship

a business that is owned and operated by one person

corporation

a business that is registered by a state and operates apart from its owners, lives on after the owners have sold their interests or passed away

Limited Liability Company

a company whose owners and managers enjoy limited liability and some tax benefits, but it avoids some restrictions associated with subchapter S corporations, similar to some aspects of a corporation and in other aspects to a limited partnership

Subchapter S Corporation

a corporation that is taxed like a partnership

general partner

a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business, each partner is liable for all the debts of the partnership, law requires that all partnerships have at least one of these, does not have to share a business equally, how the partnership interests are divided is spelled out in the partnership agreement

limited partner

a partner whose liability is limited to his or her investment, cannot be actively involved in managing the business

C-Corporation

an entity that pays taxes on earnings; its shareholders pay taxes as well; the most common corporate form; can protect the entrepreneur from being sued for the actions and debts of the corporation

nonprofit corporation

businesses that benefit a certain cause, a legal entity that makes money for reasons other than the owner's profit, can make a profit but it must remain within the company and not distributed to stockholders