1. Choose the Legal Form of Your Business

2. Forms of Business Organization
Sole Proprietorship
Sole proprietorship- a business owned and operated by one person
Most common form of business ownership
70% of all U.S. businesses
Examples: plumbers, auto mechanics, writers

3. Advantages of Sole Proprietorships
Easy to start
All business decisions made by the owner
Taxed less than other forms of business with less government involvement

4. Disadvantages of Sole Proprietorships
Responsible for all business debts or legal judgments against the business
Unlimited liability- when the debts of your business exceed its assets, creditors can claim all of your personal assets including your car, home, and savings
Difficult to expand business operations because of lack of money resources

5. The Partnership
Partnership- legal agreement between two or more people to be jointly responsible for the success or failure of a business
Least common form of U.S. businesses
Partnership agreement- drawn up by a lawyer; specifies the responsibilities of each partner
Profits in a partnership are usually divided in proportion equal to the amount of time and money invested

6. Examples: real estate agencies, law offices, medical offices
Subject to little regulation and fairly easy to establish
There are two types of partnerships:
General partnership- each partner shares in the profits and losses
Each partner’s share of the profits is taxed as personal income

7. Limited partnership- each limited partner is liable for any debts only up to the amount of his or her investment in the company
Every limited partnership must have at least one general partner who has unlimited liability
Limited partners have no voice in the management of the partnership
Must give public notice that one or more partners have limited liability

8. Advantages of Partnerships
Combines the skills of the owners
Offer more money for expansion
Taxed and regulated less than a corporation

9. Disadvantages of Partnerships
Owners may not agree on all business decisions, but the actions of one partner are legally binding to other partners
All partners must assume their share of business debt
The business is dissolved if one of the partners die

10. The Corporation
Corporation- a business that is chartered by a state and legally operates apart from the owner
Most complicated form of business
Larger firms are usually organized as corporations
Those who work for a corporation may not be the people who own it

11. Stockholders- people who own the corporation with limited liability
Boards- governing bodies who hire directors and officers to manage the affairs of the business and the interests of the stockholders
The value of an organization is divided into equal units called shares of stock
Sold on the stock market
Stockholders- people who own the corporation with limited liability
The losses of the business belong to the stockholder only to the extent of their individual investment

12. Not responsible for debts incurred by the corporation
A corporation can own assets, borrow money, perform business functions with out involving shareholders
Subject to more government regulation than sole proprietorships and partnerships

13. Incorporated- established in the state where they will do business or in another state
It is best for most small businesses to incorporate in the state in which you will do business
Foreign corporation- incorporated under the laws of a different state from the one in which it does business
Must seek approval from and register with each state in which they intend to do business

14. Subchapter S corporation- a small business that is taxed like a partnership or proprietorship
Can have no more than 35 shareholders
Must be incorporated in the United States

15. Advantages of Corporations
Each owner has limited liability
It is easier for a corporation to raise money for expansion than other forms of business
People can easily enter or leave the business by buying or selling shares of stock
Each operation area of the business can be professionally managed by an expert in that area

16. Disadvantages of Corporations
The complexity of forming it
Increased government regulation
Higher taxes on the profits of the corporation and each stockholder
Intricate accounting and record keeping

17. Legal Steps in Establishing Your Business Sole Proprietorship
You must file for a DBA- registration process by which your county government officially recognizes that your business exists
There is a filing fee for registration
This process protects the name of your business
Applies only to the county where your business is registered

18. Corporation
Articles of Incorporation- filed with the corporation and securities bureau in your state department of commerce
Identify the name and address of your business, its purpose, the names of the initial directors, and the amount of stock issued to each director
A filing fee applies
No other business may incorporate under your name

19. Depending on what business you enter and where you locate, you may have to obtain one or more licenses.
Individual states license many businesses including; cosmetologists, barbers, marriage counselors, and pharmacists
Licensing is done to protect the public from unqualified people practicing in a business and to maintain the health and welfare of the citizens
In addition to state licenses, your community may require special local licenses or permits to comply with zoning ordinances, building codes, and safety standards.

20. Assignment
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