Entrepreneurship Chapter 7

corporation

A corporation is a separate legal entity organized under the authority of a state. - Corporations are organized as either C corporations or subchapter S corporations. - C corporations are what most people think of when they hear the word "corporation." However, business startups are often organized as subchapter S corporations.

C corporation cont

A corporation is taxed as a separate legal entity. • A disadvantage of a C corporation is that it is subject to double taxation. This means that a corporation is taxed on its net income, and when the same income is distributed to shareholders in form of dividends

general partnership

A form of business organization where two or more people pool their skills, abilities, and resources to run a business. The primary disadvantage is that all partners are liable for all the partnership's debts and obligations.

limited partnership

A modified form of general partnership. • The major difference between the two is that a limited partnership includes two classes of owners: general partners and limited partners. Limited Partnership Copyright ©2016 Pearson Education, Inc. 7-13 • The general partners are liable for debts but limited partners are only liable up to their investments

Business registration requirements

Business Registration Requirements. Some states require all new businesses to register with the state.

State license and permits 3 types

Business registration requirements sales tax permits professional and occupational licenses and permits

subchapter s corp

Combines the advantages of a partnership and a C corporation. • Is similar to a partnership in that the income of the business is not subject to double taxation. Subchapter S Corporation • Is similar to a corporation in that the owners are not subject to personal liability for the debts or behavior of the business. • A Subchapter S Corporation do

Advantages of sole proprietorship

Creating one is easy and inexpensive. The owner maintains complete control of the business and retains all of the profits. Business losses can be deducted against the sole proprietor's other sources of income. It is not subject to double taxation (explained later). The business is easy to dissolve.

advantages of general partnership

Creating one is relatively easy and inexpensive compared to a corporation or limited liability company. The skills and abilities of more than one individual are available to the firm. Having more than one owner may make it easier to raise funds. Business losses can be deducted against the partners' other sources of income. It is not subject to double taxation (explained later).

Business Licenses and Permits

Depending on the nature of the business, the business may need local, state, and/or federal licenses and permits to operate.

partnerships

If two or more people start a business, they must organize as a partnership, corporation, or limited liability company. - Partnerships are organized as either general or limited liability partnerships.

additional requirements

If you plan to use a fictitious name for your business, in most cases you'll need to obtain a fictitious business name permit (also called dba or doing business as). • A fictitious name permit allows a business to operate under a fictitious name, like Gold Coast Sea Food or Red Rock Bakery. - All businesses, other than sole proprietorships that do not have employees, are required to obtain a Federal Employee Identification Number

limited liability corporation

Is a form of business ownership that is rapidly gaining popularity in the U.S. • Along with the Subchapter S, it is a popular choice for start-up firms. Limited Liability Company Copyright ©2016 Pearson Education, Inc. 7-23 • The limited liability company combines the limited liability advantage of the corporation with the tax advantages of a partnership. • A limited liability company does not pay taxes. Profits and losses are passed through to the tax returns of the owner

disadvantages of sole proprietorship

Liability on the owner's part is unlimited. The business relies on the skills and abilities of a single owner to be successful. Of course, the owner can hire employees who have additional skills and abilities. Raising capital can be difficult. The business ends at the owner's death or loss of interest in the business. The liquidity of the owner's investment is low.

disadvantages of general partnership

Liability on the part of each general partner is unlimited. The business relies on the skills and abilities of a fixed number of partners. Of course, the owners can hire employees who have additional skills and abilities. Raising capital can be difficult. Because decision making among the partners is shared, disagreements can occur. The business ends with the death or withdrawal of one partner unless otherwise stated in the partnership agreement. The liquidity of each partner's investment is low.

Advantage of llc

Members are liable for the debts and obligations of the business only up to the amount of their investment. The number of shareholders is unlimited. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation, or corporation, providing much flexibility. Because profits are taxed only at the shareholder level, there is no double taxation.

Federal License and Permit

Most businesses do not require a federal license to operate, but some do. - Examples of businesses that require federal licenses and/or permits to operate include businesses that sell (or provide) • Alcohol, Tobacco, Firearms, Animal Transport Across State Lines, Commercial Fisheries, and Radio and Television Broadcasting.

advantages of c corporation

Owners are liable only for the debts and obligations of the corporation up to the amount of their investment. The mechanics of raising capital is easier. No restrictions exist on the number of shareholders, which differs from subchapter S corporations. Stock is liquid if traded on a major stock exchange. The ability to share stock with employees through stock options or other incentive plans can be a powerful form of employee motivation.

professional and occupations licenses and permits

Professional and Occupational Licenses and Permits. In all states, there are laws that require people in certain professions to pass a state exam and maintain a professional license to conduct business. Examples includes barbers, nurses, and real estate

disadvantage of llc

Setting up and maintaining one is more difficult and expensive. Tax accounting can be complicated. Some of the regulations governing LLCs vary by state. Because LLCs are a relatively new type of business entity, there is not as much legal precedent available for owners to anticipate how legal disputes might affect their business. Some states levy a franchise tax on LLCs—which is essentially a fee the LLC pays the state for the benefit of limited liability.

disadvantages of c corporation

Setting up and maintaining one is more difficult than for a sole proprietorship or a partnership. Business losses cannot be deducted against the shareholder's other sources of income. Income is subject to double taxation, meaning that it is taxed at the corporate and the shareholder levels. Small shareholders typically have little voice in the management of the firm.

Standard of subchapter s corp

The business cannot be a subsidiary of another corporation. The shareholders must be U.S. citizens. Partnerships and C corporations may not own shares in a subchapter S corporation. Certain types of trusts and estates are eligible to own shares in a subchapter S corporation. It can only have one class of stock issued and outstanding (either preferred stock or common stock). It can have no more than 100 members. Husbands and wives count as one member, even if they own separate shares of stock. All shareholders must agree to have the corporation formed as a subchapter

Sole proprietorship

The simplest form of business entity is the sole proprietorship. - A sole proprietorship is a form of business organization involving one person, and the person and the business are essentially the same. - A sole proprietorship is not a separate legal entity. The sole proprietor is responsible for all the liabilities of the business, and this is a significant drawback.

C corporation

a separate legal entity that, in the eyes of the law, is separate from its owners. • In most cases a corporation shields its owners, who are called shareholders, from personal liability for the debts of the corporation. C Corporation • A corporation is governed by a board of directors, which is elected by shareholders formed by filing orders of incorporation

Issues to consider when choosing legal business statue

cost of setting up/maintaining legal form, extent to which personal assets can be shielded from the liabilities of the business, tax considerations, number/types of investors involved

local license and permit

permits that may be needed. - The first is to operate a certain type of business. • Examples include child care, barber shops and salons, automotive repair, and hotels and motels. - The second category is permits for engaging in certain types of activities. • Examples include building permit (required if you are building or remodeling), health permit (normally required if you are involved in preparing food), and signage permit (may be required to erect a sign).

business ownership type-4 types s

sole proprietorship, corporation, partnership, limited liability company

sales tax permits

that sell goods, and in some cases services, to collect sales tax and submit the tax to the proper state authorities