Forms of Business Ownership It’s just paper. All I own is a pickup truck and a little Walmart stock. ………………………………..Sam Walton

Sole Proprietorship A business owned and managed by one individual; the business and the owner are one and the same in the eyes of the law

Sole Proprietorship Advantages Profit incentive Total decision-making Profit/Loss on Owner’s Tax Return; Business Doesn’t File

Sole Proprietorship Unlimited personal liability Disadvantages Limited skills and abilities Limited access to capital

Partnership An association of two or more people who co-own a business for the purpose of making a profit

Partnership Advantages Easy to establish Complementary skills Division of profits Larger pool of capital Business doesn’t file tax return. Partners show profit/loss on individual tax returns. (K-1 Form)

Partnership Disadvantages: Lack of continuity Potential for personality and authority conflicts Partners bound by law of agency** =Liability Issues

Corporations A separate legal entity apart from its owners which receives the right to exist from the state in which in which it is incorporated. Owned by stockholders. (Common or Preferred Stock)

Corporations Advantages for Owners Limited liability for stockholders! Ability to attract capital by offering stock. Dividends decided by Board. Stockholders report dividends on their tax returns. Corporation itself pays Federal Taxes.

Corporations Disadvantages Double taxation Legal requirements and red tape

An S Corporation A corporation that retains the legal characteristics of a regular C corporation but has the advantage of not paying federal tax. Criteria: Common stock only; No Preferred Stock No more than 100 shareholders

S Corporation Advantages All of advantages of a regular C corporation. Limited liability for shareholders! Personal assets safe! Corporation itself doesn’t pay Federal Tax (like C Corporation does) Profit/loss on stockholders’ individual tax returns.

Limited Liability Company A relatively new form of ownership that began in 1977 in U.S. MT added it in 1990s. Limited liability – protection from personal liability for debts of the business. Centralized management. Owners are taxed individually on their share of profit or loss.

Limited Liability Corporation Articles of Organization – Secretary of State. No cap on member numbers One person can be an LLC! ~$70 filing fee. Owners are called members, not stockholders. Operating agreement must be filed. (Rights, duties of each member. Distribution of profit/loss.)

Limited Liability Corporation Limited personal liability No limit on number of members LLC does not pay federal taxes; members do on their share of income on personal tax returns. Flexibility to divide income as owners see fit

Assignment for Tomorrow 1 Assignment for Tomorrow 1. Research Joint Venture as a form of business ownership. What is it? 2. Who is Montana’s Secretary of State? 3. What is the current filing fee for an LLC in MT?