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