Types of Business Ownership

(The logos used in this PowerPoint were copied directly from corporate websites. They have not been altered in any way.)

Three Basic Types of Business Ownership

1.Sole proprietorship

2. Partnership

3. Corporation

What is a Sole Proprietorship?

•A business owned and operated by one person.

•The easiest and most popular type of business ownership.

•Approximately 76 percent of all businesses in the U.S. are sole proprietorships.

Advantages of Sole Proprietorships

•Easy and inexpensive to create.

•Owner makes all business decisions and activities.

•Owner receives all profits.

•Least regulated type of business ownership.

•Business itself pays no taxes. Taxes are paid as personal income of the owner.

Disadvantages of Sole Proprietorships

• Owner has unlimited liability for all debts and actions of the business. Unlimited liability means the debts of the business may be paid from the personal assets of the owner.

• Difficult to raise capital.

• Sole proprietorship is limited by his/her skills and abilities.

• The death of the owner automatically dissolves the business.

What is a Partnership?

A type of business ownership in which two or more people share the assets, liabilities, and profits.

Types of Partnerships•General partnership: A partnership in which all partners have unlimited personal liability and take full responsibility for the management of the business.

•Limited partnership: A partnership in which the partners’ liability is limited to their investment.

•Joint venture: A partnership in which two companies join to complete a specific project. The partnership ends after a specified period of time.

•Strategic alliance: A partnership in which two businesses work together for mutual benefit. (Example: A business types a partnership with a manufacturer that agrees to produce the business’s products.)

Advantages of Partnerships

•Shared decision making and management responsibilities.

•Easier to raise capital than in a sole proprietorship.

•Few government regulations.

•Business losses are shared by all partners.

Disadvantages of Partnerships

•Partnerships may lead to disagreements.

•Some entrepreneurs are not willing to share responsibilities and profits.

•Some entrepreneurs fear being held legally liable for the error of their partners.

•Each owner has unlimited liability.

What is a Corporation?

A business that is chartered by a state and legally operates apart from its owners.

Types of Corporations• C-corporation: The most common type of

corporation. It protects the entrepreneur from being personally sued for the actions and debts of the corporation.

• Subchapter S-corporation: A corporation that is taxed like a sole proprietorship or partnership with each shareholder paying tax on the amount of their proportionate shares.

Clarification on S-Corporations

Types of S-Corps Some professions that choose the S-corp tax include certified public accountants,

real estate agents, attorneys, construction contractors and financial advisers. But it can be an advantage for almost any business to file its taxes as an S-corp, especially if it has an owner-operator who makes significantly more than the average salary in that field. For example, according to Gedeon Law & CPA, an accomplished CPA who earns $246,000 from a self-employed S-corp could pay himself a salary of $91,000, and save the employment taxes on more than $150,000 by taxing the rest as a dividend payment.

From http://smallbusiness.chron.com/s-corporation-types-businesses-65481.html With this information, you can "assume" that almost any CPA firm, Real Estate Firm,

Attorney Office (more than one lawyer) etc would be an S-Corp. The members of the corporation would pay tax on the part that they earn. Look online or in your local phonebook for a name of one of these types of corporations.

Another site: http://s-corp.org/about/ Under the ABOUT tab you will see their board of directors. Each has an S

corporation. Also, there is a list of ALLIES which are other S Corporations.

Types of Corporations• Nonprofit corporation: Legal entities that make money for

reasons other than the owner’s profit. Examples:

o Churcheso Charitieso education foundationso trade associations

• Limited Liability Company (LLC): A new type of business ownership that provides limited liability and tax advantages. Examples

o Law firmso Medical firms

Advantages of Corporations

•Can raise money by issuing shares of stock.

•Offers owners limited liability. (Limited liability: Owners are liable only up to the amount of their investments.)

•People can easily enter or leave the business by buying or selling their shares of stock.

•The business can hire experts to professionally manage each aspect of the business.

Disadvantages of Corporations•Legal assistance is needed to start a corporation.

•Start-up is costly.

•Corporations are subject to more government regulations than partnerships or sole proprietorships.

•A lot of paperwork is involved in running a corporation.

•Income is taxed twice.

Other Ways to Start a Business

•Buy an existing business.

•Enter a family business.

•Own a franchise business.

Buying an Existing Business Advantages

• Existing businesses already have customers, suppliers, and procedures.

• Seller of the business may be willing to train the new owner.

• There are existing financial records.

• Financial arrangements may be easier.

Buying an Existing BusinessDisadvantages

•Business may be for sale because it is not making a profit.

•Problems may be inherited with the purchase of an existing business.

•Many entrepreneurs may not have the capital needed to purchase an existing business.

Entering a Family BusinessFacts

•There is a certain sense of pride and accomplishment that comes from being part of a family endeavor.

•A business can remain in the family for generations.

•Some people enjoy working with relatives.

•The efforts of running a family business give one the benefit of knowing that their efforts are helping those whom they care about.

Entering a Family BusinessDisadvantages

•Senior management positions are often held by family members who may not be the best qualified.

•It may be difficult to retain qualified employees who are not members of the family.

•Family politics may affect decisions regarding the business.

•It is often difficult to separate business life and private life in family-run businesses.

•It is often difficult to set policies and procedures and to make decisions.

Owning a Franchise BusinessTerms You Should Know

Franchise: A legal agreement that gives an individual the right to market a company’s products or services in a particular area.

Franchisee: A person who purchases a franchise agreement.

Franchisor: The person or company who sells a franchise.

Initial franchise fee: The fee the franchise owner pays in return for the right to run the business.

Purchasing a Franchise BusinessAdvantages

An established product or service is being provided.

Franchisors often offer management, technical, and other assistance.

Equipment and supplies may be less expensive.

A guarantee of consistency attracts customers.

Purchasing a Franchise BusinessDisadvantages

The cost of franchises may be high, which can reduce profits.

Franchise owners are limited in the decisions they can make regarding the business.

The performance of other franchises impact on the franchisee.

The franchise agreement may be terminated by the franchisor.