Business Structures

Our Learning Objective: A3.1: Explain the organizational structure of various business environments. A1.4: Determine the type of business organization most appropriate for various business environments.

How to Start a Business in CA… Register a DBA (Doing Business As…) or FBN (Fictitious Business Name) with the CA Secretary of State. Select your business structure. File with the government to get a federal employer identification number. Get business license and permits from the County Clerk.

3 Forms of Ownership Sole Proprietorships Partnerships Corporations General Partnership Limited Partnership Limited Liability Partnership (LLP) Corporations C Corporation S Corporation Limited Liability Company (LLC)

Sole Proprietorship Simple Low taxation One owner Taxed based on income received (Single-taxation) Pros: Simple Low taxation Owner can make all business decisions instead of a board of directors Cons: Unlimited liability (if sued, money comes out of the business…and the owner’s pocket.) Store story

Pass-through Taxation Income Statement Revenue: $108,000 Expenses: $90,000 Net Income: $18,000 The net income passes through the business’s income statement and into… …The business owner’s wallet… The business owner then fills out a 1040 Schedule C tax form to show the IRS his/her profit

Partnership Two or more owners. Taxes based on income (Single-taxation) Two types: General and Limited

Corporation Owned by shareholders. Shareholders gain ownership by buying “shares” of stock Example: owning 100,000 shares of a company that issues 1 million shares means you own 10% of that company.

Pass out Shares

Stocks and Dividends Dividends: a distribution of a portion of a company's earnings. In plain English: a “thank you” payment for buying and holding their stock.

Pass out dividends

Double Taxation The corporations profits are taxed… (39.1% for highest profitability) …And… Dividends are also taxed (15% for high-income earners) and (25% for very high-income earners). Corporate executives own large amounts of stock so they are heavily taxed. Shares of stock are given to them as part of a compensation package.

Check for Understanding (Questions) 1. What is a sole proprietorship? 2. Name one advantage of a partnership and one disadvantage of a partnership. 3. Role-play limited vs. unlimited liability when a business lawsuit takes place. 4. What structure is most appropriate for a person who prefers control of the business and is more worried about taxes than lawsuits? Why?

3 Forms of Ownership Sole Proprietorships Partnerships Corporations General Partnership Limited Partnership Limited Liability Partnership (LLP) Corporations C Corporation S Corporation Limited Liability Company (LLC)

Research and Presentations 30 minutes

LLC vs. LLP Combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. Pro: limited liability Con: $800 tax + additional tax if income is higher than $250,000 Partnership in which some or all partners have limited liabilities. Pro: one partner is not responsible or liable for another partner's misconduct or negligence. Con: Additional taxes (similar to LLC)