 Business is owned and run by one individual  Nearly 76% of all businesses  Owner receives all of its profits and bear all of its losses.

 Owner is personally liable for all of the companies debt  Debt is money that it owes to other businesses or people

 Advantages  Easy to start  Inexpensive to create  Gives the owner complete authority over all business decision  Receives all of the profits

 Advantages  Least regulated for of ownership  Business itself pays no taxes because it is not separate from the owner ▪ Income is taxed at the personal rate of the owner ▪ Personal rate is lower than the corporate rate

 Disadvantages  The owner has unlimited liability ▪ Means that the owner is fully responsible for all debts and actions of the business ▪ Personally responsible from the owner’s personal assets ▪ Assets – things that you own  Raising Capital ▪ Money

 Disadvantages  Owners abilities and skills are limited  Death of the owners automatically dissolves the business unless there is a will.

 How to start  Is as simple as coming up with a company name ▪ When using a name other than your own, you must apply for a Certificate of Doing Business Under an Assumed Name ▪ Often called: DBA – doing business as  Obtain from local government offices  Purpose is to ensure that the name is not being used in the area

 How to start  If you are going to hire employees ▪ Need an Employer Identification Number (EIN) ▪ Comes from the IRS (Internal Revenue Service) ▪ Used for tax purposes to track federal income tax withheld and federal income tax returns

 How to start ▪ If you are going to be a vendors or retailer (sell items) ▪ Sales Tax Identification Number  Assigned by state’s Department of Revenue  Retailer acts as an agent for the state by collecting and remitting the required amount

 Unincorporated business with two or more owners  Most common business organization  Partners share decisions, assets, liabilities, and profits  Requires a DBA (Doing Business As) when the last names are not used in naming the business

Advantages  Can draw on the skill, knowledge, and financial resources of more than one person

Two types of Partnership 1. General  Participant has unlimited personal liability and takes full responsibility for managing the business  Any partner can bind the partnership on contracts

Two types of Partnership 2. Limited  Partners liability is limited to his or her investment  Cannot be actively involved in managing the business

Advantages of Partnership  Inexpensive to create  Share Ideas  Secure investment capital more easily and in greater amounts

Disadvantages of Partnership  Difficult to dissolve  Personality conflicts ▪ Usually over authority ▪ Must have clear roles  Technical Disadvantages ▪ Can be held liable for other partners actions ▪ Bound by contracts other partner signs

Planning for Successful Partnership 1. Share business responsibilities 2. Put things in writing 3. Be honest about how the business is doing 4. Establish partnership agreement before the business is started

Planning for Successful Partnership 1. Have a legal written agreement a. How profits will be shared b. How responsibilities will be divided c. What happens if one partner dies or quits

 Corporation  Business that is registered by a state and operates apart from its owners  Lives on after the owners have sold their interests or passed away

1. C-Corporation 2. Subchapter S Corporation 3. Nonprofit Corporation

 Pays taxes on earnings  Shareholders pay taxes as well  File Certificate of Incorporation with the state  Issue stocks  Shareholders – Owners of Corporation  Required to have a Board of Directors

 Advantages  Status – Corporations get help getting loans  Limited Liability – Only liable up to the amount of their individual investment  Perpetual Existence – Continuous life

 Advantages  Owners can create pension and retirement funds and offer profit sharing  Tax Advantage – Deduct certain expenses from their reported income (Salaries and Contribution to benefit plans)

 Disadvantages  Expensive to start up – Cost $500 to $2500 to create  Taxed – Corporations income is heavily taxed ▪ Corporation pay tax on profits ▪ Shareholders pay tax on dividends

 Taxed like a partnership  Avoids double taxation  Advantage  Profits taxed only once at shareholders personal tax rate  S Corp is not a taxpaying entity

 Disadvantage  Can have no more than 75 stockholders who must be US citizens  Only have one class of stock  Cash businesses are S Corps ▪ If business produces enough cash, the form works ▪ If business shows a large taxable profit but has not generated enough cash to cover the taxes, the owners must pay out of their earnings

 Businesses that benefit certain causes in the community  Make money for reasons other than the owner’s profit  Business can make profit, however, the profit must remain within the company and not be distributed to shareholders

 Company whose owners and managers enjoy limited liability and some tax benefits, but it avoids some restrictions associated with S Corporation

 Benefits  Simpler to start up than a corporation  Allows for flexibility of a partnership structure  Protects it owners with the limited liability of a corporation  Not subject to double taxation  Not limited on the number of members or their status

 Is a company with publicly traded shares that anyone can buy in a stock market.  Is also legally separated from the stockholders (people that own the stock) and the managers that run it  Stock holders own the company

 Stockholders are not responsible for the company’s debt  A corporation continues to exist even if the stockholders or managers change  Stockholders can easily sell their ownership shares through the stock market

 May be owned by an individual  Or privately sell stocks to fund the business  Stocks are not sold publicly on the stock market

 Initial Public Offering – IPO  Initial sale of stock to the public by investment bankers  Underwriter – Investment banker that buys an entire new securities issue from a company and resells it

 3 Major stock markets 1. NYSE – New York Stock Exchange 2. NASDAQ – National Association of Securities Dealer Automated Quotation 3. AMEX- American Stock Exchange

 Common Stock  Preferred Stock

 Shares of the company do not guarantee a dividend (Part of the companies profit that are shared with the stockholder)  Dividend may be more then preferred stock holders  Right to vote for Board of Directors  Right to vote at Annual Meeting

 Guaranteed dividend  No voting rights

 Securities and Exchange Commission (SEC)

 Earnings – The amount of money that remains after subtracting the companies expenses from its revenue  Investor – Someone who risks funds with the hope of it increasing in value