Forms of Business: –Sole Proprietorship –Partnership –Corporations –Limited Liability Company –S-Corporation –Cooperative

Sole Proprietorship Business owned and operated by one person. Most common type of business.

Section 16.1 Sole Proprietorships and Partnerships Sole proprietorships have several advantages: They are easy to form. The owner has total control of the business. The owner gets to keep all the profits. The profits are taxed only once as income.

Section 16.1 Sole Proprietorships and Partnerships Sole proprietorships also have some disadvantages: The business must be financed by the owner. The owner has unlimited liability. If the owner dies or closes the business, the business ceases to exist.

Section 16.1 Sole Proprietorships and Partnerships Unlimited liability means the business owner is responsible for all losses suffered by the business.

Partnership Two or more persons carry on as co- owners of a business for profit.

Section 16.1 Sole Proprietorships and Partnerships Partnerships have several advantages over sole proprietorships: More financing is available to partnerships. Partners share the burden of work. Partners share liability.

Section 16.1 Sole Proprietorships and Partnerships Partnerships also have some disadvantages: Partners must share the profits. All partners have a say in running the business, so conflicts can arise. Partners are liable for the actions of other partners.

Section 16.1 Sole Proprietorships and Partnerships Partners share certain rights: Right to use partnership property Right to share in managing the business Right to share in the profits

Section 16.1 Sole Proprietorships and Partnerships Partners also share certain duties: Duty to be loyal to the business. Duty to obey the Articles of Partnership and partnership decisions. Duty of due care, which means a partner must work to the best of his or her ability.

Section 16.1 Sole Proprietorships and Partnerships The breaking up of a partnership, or any business entity, is called a dissolution.

Section 16.1 Sole Proprietorships and Partnerships Dissolution of a partnership can occur by: Acts of the partners. Operation of law, in the case of bankruptcy or death of a partner. A court order, which a partner can obtain because of the actions of another partner.

Corporation Treated by law as an individual person, separate from its owners. Can own property, pay taxes, and make contracts just like a person.

Section 16.2 Corporations and Limited Liability Companies Ownership of a corporation is divided into shares. Each share is a unit of ownership. The owners of shares are called shareholders.

Section 16.2 Corporations and Limited Liability Companies Corporations have several advantages: They can obtain large amounts of capital through the sale of shares. Shareholders’ liability is limited to the amount of shares they own. A corporation continues to exist even after the founders, managers, and directors are gone.

Section 16.2 Corporations and Limited Liability Companies Corporations also have disadvantages: They are taxed twice: on the corporation’s profits and on the shareholder’s profits. They face numerous government regulations. The founders of the corporation can lose control of the business to shareholders or the board of directors.

Section 16.2 Corporations and Limited Liability Companies Corporations can be: Public or Private Stock or Nonstock

Section 16.2 Corporations and Limited Liability Companies Public corporations are created and owned by the state for the public interest and supported mostly by public funds. Private corporations are owned by private individuals and may be for profit or nonprofit.

Section 16.2 Corporations and Limited Liability Companies Nonprofit corporations, such as charitable organizations, are owned through membership rather than the sale of stock and are called nonstock corporations.

Section 16.2 Corporations and Limited Liability Companies To create a corporation, it is necessary to file with the state a legal document called the articles of incorporation. The articles of incorporation describe the structure and purpose of the corporation.

S-Corporations Limited Liability Company (LLC) Combines the features of a corporation and a partnership. Created like a corporation by filing articles of organization. Like a corporation, gives its owners limited liability. As in partnership, LLC owners can manage and dissolve the company themselves.

S-Corporations Limited Liability Company (LLC) Advantages: –Limited Liability –Less Recordkeeping –Profits Shared Disadvantages: –Limited Life Must be dissolved if a member leaves. –Self-Employment Taxes

S-Corporations S-Corporation (S-Corp) A special type of corporation formed through an IRS tax election. Different because profit and loss pass through the individual shareholder’s personal tax return. Business is not taxed.

S-Corporations S-Corporation (S-Corp) Advantages: –Tax Savings –Tax Credits for Business Expenses –Independent Life Shareholders can leave the company and/or sell shares and business continues. Disadvantages: –Stricter Operational Processes –Shareholder Compensation Requirements

S-Corporations Cooperative Owned and operated for the benefit of those using the services. Profits and earnings split among the user- owners. Common in healthcare, retail, agriculture, art, and restaurant industries.

S-Corporations Cooperative Advantages: –Less Tax –Funding Opportunities –Democratic Setup –Perpetual Existence –Reduce Costs and Improve Products/Services Disadvantages: –Obtaining Capital Through Investors –Lack of Membership and Participation

SOURCES