TYPES OF BUSINESSES

Liability of Business Owners Unlimited liability means that a business owner can be legally forced to use personal money and possessions to pay the debts of the business. Limited liability means that a business owner cannot be legally forced to use personal money and possessions to pay business debt. 2 Section 3.2: Types of Business Ownership

SOLE PROPRIETORSHIP A business that is owned and managed by one individual who receives all the profits and bears all the losses.

Benefits: Sole Proprietorship Ease of starting and going out of business Control over profits and business operations Pride of ownership Lower taxes (pays no corporate income taxes)

Costs: Sole Proprietorship Unlimited liability Difficulty in raising financial capital Responsible for all losses Management knowledge may be limited

PARTNERSHIP A business that is owned and managed by two or more individuals who receive all the profits and bear all the losses.

Benefits: Partnership Easier to raise financial capital Partners may combine managerial skills Personal satisfaction Lower taxes (pays no corporate income taxes)

Costs: Partnership Unlimited liability Shared profits Possible conflicts between partners Possible instability after death of a partner

CORPORATION A business that is owned by stockholders and has rights and responsibilities as if it were a person.

Benefits: Corporation Limited liability Greater financial capital Unlimited life Specialized management

Costs: Corporation Increased taxation (pays corporate income taxes) Difficulty in starting (each state has its own rules for a corporate charter) May be larger, more bureaucratic than other forms of business Increased government control

Types of Corporations Most corporations are C corporations, which are taxed as an entity by the federal government. A subchapter S corporation differs from a C corporation in how it is taxed. It is not taxed as an entity, rather its income or loss is applied to each shareholder and appears on their tax returns. A limited liability company is a legally defined type of business ownership similar to a C corporation, but with simpler operating requirements and tax procedures and greater liability protection for the business owners. A nonprofit corporation is a legally defined type of business ownership in which the company operates not to provide profit for its shareholders but to serve the good of society. 12 Section 3.2: Types of Business Ownership

Which type is best? Depends on your situation! They all have strengths and weaknesses.