TYPES OF BUSINESS

OWNERSHIP
 Entrepreneurs need to understand the
advantages and disadvantages of various
types of businesses so that they can choose
the one that best suits their needs.
 SOLE PROPRIETORSHIP

• The easiest and most popular form of business

ownership is the sole proprietorship.

sole
soleproprietorship
proprietorship
aabusiness
businessthat
thatisisowned
owned
and
andoperated
operatedbybyoneoneperson
person
 SOLE PROPRIETORSHIP
• The owner of a sole proprietorship:

receives the profits,

incurs any losses, and
is liable for the debts of the business.
 SOLE PROPRIETORSHIP
• In a sole proprietorship the owner must
decide how much liability protection he
or she needs.

liability
liabilityprotection
protection
insurance
insuranceagainst
againstthe
the
debts
debtsand
andactions
actionsof
ofaa
business
business
 ADVANTAGES
Sole proprietorship is easy and inexpensive to create.

The owner has complete authority over all business

activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at the

personal rate of the owner.
 DISADVANTAGES
The owner has unlimited liability.

Raising capital is more difficult.

The business is totally reliant on the skills and

abilities of the owner.

The death of owner dissolves the business unless

there is a will to the contrary.
 DISADVANTAGES
• The biggest disadvantage of a sole
proprietorship is financial.
• In this form of business ownership, the owner
has unlimited liability.

unlimited
unlimitedliability
liability
full
fullresponsibility
responsibilityfor
forall
alldebts
debts
and
andactions
actionsof
ofaabusiness
business
 PARTNERSHIP
A partnership draws on the skills,
knowledge, and financial resources of more
than one person.

partnership
partnership
an
anunincorporated
unincorporatedbusiness
businesswith
with
two
twoorormore
moreowners
ownerswhowhoshare
share
the
thedecisions,
decisions,assets,
assets,liabilities,
liabilities,
and
andprofits
profits
 PARTNERSHIP

General vs Limited
The law requires that all general
generalpartner
partner
partnerships have at aaparticipant
participantininaa
least one general partnership
partnershipwhowhohashas
unlimited
unlimitedpersonal
personalliability
liability
partner. and
andtakes
takesfull
full
A partnership may be responsibility
responsibilityfor
for
managing
managingthe thebusiness
business
set up so that all of the
partners are general
partners.
 PARTNERSHIP
• Some partnerships include a limited
partner.

limited
limitedpartner
partner
aapartner
partnerininaabusiness
businesswhose
whose
liability
liabilityisislimited
limitedtotohis
hisor
orher
her
investment;
investment;aalimited
limitedpartner
partner
cannot
cannotbe beactively
activelyinvolved
involvedinin
managing
managingthe thebusiness
business
 PARTNERSHIP
Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

 PARTNERSHIP
It is difficult to dissolve one partner’s interest without
dissolving the partnership.

There may be personality conflicts.

Partners can be held liable for each others’ actions.

 CORPORATIONS
In a corporation, the owners of the business are
protected from liability for the actions of the company.

There are three types of corporation

corporation
corporations: aabusiness
businessthatthatisisregistered
registered
•C-Corporation by
byaastate
stateand
andoperates
operatesapart
apart
from
fromitsitsowners;
owners;ititissues
issues
•Subchapter S Corporation shares
sharesofofstock
stockandandlives
liveson
on
•Nonprofit Corporation after
afterthe
theowners
ownershave havesold
sold
their
theirinterest
interestororpassed
passedaway
away
 C- CORPORATIONS

• A C-corporation is the most common corporate

form.
C-corporation
C-corporation
an
anentity
entitythat
thatpays
paystaxes
taxeson
onearnings;
earnings;
its
itsshareholders
shareholderspay
paytaxes
taxesasaswell
well

• C-Corporations: In smaller corporations, the founders

generally are the major shareholders.
shareholders
shareholders
the
theowners
ownersofofaacorporation
corporation
C-CORPORATIONS

ADVANTAGES
status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages
 C-CORPORATIONS

Corporate shareholders have limited

liability, but some banks require officers to
personally guarantee the debts of the company.

limited
limitedliability
liability
partial
partialresponsibility
responsibilityofofaacorporate
corporate
shareholder;
shareholder;he heororshe
sheisisresponsible
responsible
only
onlyup
uptotothe
theamount
amountofofhis hisororher
her
individual
individualinvestment
investment
C-CORPORATIONS

DISADVANTAGES
expensive to set up

income more heavily taxed

subject to double taxation on income

pays taxes on profits

stockholders taxed on dividends

 S- CORPORATIONS

• Avoid double taxation with a profit

S-corporation
S-corporation
AAcorporation
corporationtaxed
taxedlike
like
aapartnership
partnership
 S- CORPORATIONS
Advantages
• Profits are only taxed once at the shareholder’s personal tax rate.
• The S-Corporation in not a taxpaying entity
Disadvantages
• Can have only one class of stock
• Often restaurants are S-Corporations. If the business produces
enough cash, this form works
• If the business shoes a large taxable profit but has not generated
enough cash to cover the taxes, the owners must pay the taxes
out of their personal earnings
 NON-PROFIT CORPORATIONS

A nonprofit corporation must fall within

one of four categories:
•religion nonprofit
nonprofitcorporation
corporation
•charity aalegal
legalentity
entitythat
thatmakes
makes
•public benefit money
moneyforforreasons
reasonsother
other
than
thanthe
theowner’s
owner’sprofit;
profit;itit
•mutual benefit can
canmake
makeaaprofit,
profit,but
butthe
the
profit
profitmust
mustremain
remainwithin
within
the
thecompany
company
LIMITED LIABILITY COMPANY

• There are many benefits to forming a

limited liability company (LLC).

limited
limitedliability
liabilitycompany
company(LLC)
(LLC)
aacompany
companywhose
whoseowners
ownersand
andmanagers
managers
have
havelimited
limitedliability
liabilityand
andsome
sometax
tax
benefits,
benefits,but
butwhich
whichavoids
avoidssome
some
restrictions
restrictionsassociated
associatedwith
withSubchapter
SubchapterSS
corporations
corporations
 LIMITED LIABILITY COMPANY

• LLC is simpler to set up than a corporation

• LLC allows for the flexibility of a partnership structure
• LLC protects its owners with the limited liability of a
corporation, its members are not liable for the
company’s debts.
• LLC is not subject to double taxation. Provides the
pass-through tax advantages of partnership. Profits are
taxed personally, and shareholders are taxed only once.
 CORPORATIONS

Before deciding on a legal form, ask yourself

key questions about:
Making the Decision
your skills willingness to assume liability
access to capital level of control wanted
expenses length of time you expect to
own the business
 The purpose of a cooperative is to save
money on the purchase of certain goods and
services