Report by: Argentina E. Morata

Legal Forms of Business Ownership

Legal Forms of Business Ownership

LEARNING OBJECTIVES

Describe the sole proprietorship form of organization, and specify its advantages and disadvantages.

Identify the different types of partnerships and explain the importance of a partnership agreement.

Describe the advantages and disadvantages of the partnership form of organization.

Explain how corporations are formed and how they operate.

Discuss the advantages and disadvantages of the corporate form of ownership.

Examine special types of business ownership, including S-corporations, limited-liability companies, cooperatives, and not-for-profit corporations.

Legal Forms of Business Ownership

My Business or our Business?

Which is the right one for your business??

Legal Forms of Business Ownership

Three basic forms of business ownership:

• Sole proprietorship

•Partnership

•Corporation

Legal Forms of Business Ownership

Sole proprietorship•A business owned and operated by one person.

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

Legal Forms of Business Ownership

Sole ProprietorshipExamples

Advantages of sole proprietorships• Easy and inexpensive to form; few

government regulations• Complete control over your business• Get all the profits earned by the business• Don’t have to pay any special income

taxes• Sole proprietorship is easy and

inexpensive to create• The owner has completely authority over

all business activities

Disadvantages of sole proprietorships•Owner has unlimited liability for all debts and actions of the business. Unlimited liability: 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.

Partnership

A form 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.

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.

The Partnership Agreement

A partnership agreement is a written document (articles of agreement) that sets forth all the terms under which the partnership is to operate.

The partnership could be an oral agreement, but is generally not done that way.

Writing down the terms of the partnership may eliminate future disputes.

The agreement should spell out the status, responsibilities, and authority of each partner.

A written partnership agreement sets forth the details and terms of the partnership for the protection of each partner.

Model partnership agreement

Corporation

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

Types of corporations•C-corporation: The most common form 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.

•Nonprofit corporation: Legal entities that make money for reasons other than the owner’s profit.

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

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.

Thank you!