Types of Business Ownership Sole Proprietorship Partnership Corporation Limited Liability Company Types of Business Ownership

Sole Proprietorship Owned and operated by one person or family Owner receives all profits Owner incurs any losses and is liable for the debts of the business

Sole Proprietorship Advantages Disadvantages Easy to create Owner receives all profits Least regulated form of business Business does not pay taxes Taxes included in owner’s personal income tax Personal taxes are at lower rates than corporate taxes. Unlimited liability Full responsibility for all debts Owner’s personal assets are at risk Requires owner to be knowledgeable in all aspects of the business Business dissolves upon the death of the owner Sole Proprietorship

Partnership Two or more owners Ownership may or may not be divided equally Partnership agreement defines partners’ interests in the business

Partnership Advantages Disadvantages Easy to create Easier to acquire start-up capital (shared expenses) Share ideas, skills, and financial obligations Owners pay taxes as personal income tax Difficult to dissolve partnerships Potential for personality conflicts / disagreements in business decisions Partners are liable for each others’ actions Partnership

Corporation Registered by the state Operates apart from its owners Unlimited life Does not dissolve upon owner’s death Represented by shares of public and private stock

Corporation Advantages Disadvantages Separate legal entity from owners Perpetual existence Liability is limited to the amount invested by the shareholder Note: Officers may be personally liable. Consider Enron’s late Kenneth Lay. Expensive to start up Requires extensive legal paperwork; need attorneys Owners are seemingly double- taxed Business profits taxed at a higher corporate rate Owner’s income from the business are taxed as personal income Corporation

Limited Liability Company (LLC) Relatively new form of ownership Hybrid of a partnership and a corporation Characteristics include: Owners are shielded from personal liability Profits and losses pass directly to the owners without taxation of the company itself

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