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Ch 7: Type of Business Ownership

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1 Ch 7: Type of Business Ownership

2 Sole Proprietor 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.

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

4 Sole Proprietor Advantages Easy to start Inexpensive to create
Gives the owner complete authority over all business decision Receives all of the profits

5 Sole Proprietor 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

6 Sole Proprietor 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

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

8 Sole Proprietor 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

9 Sole Proprietor 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

10 Sole Proprietor 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

11 Partnership 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

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

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

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

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

16 Partnership 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

17 Partnership Planning for Successful Partnership
Share business responsibilities Put things in writing Be honest about how the business is doing Establish partnership agreement before the business is started

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

19 What is a Corporation 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

20 Types of Corporation C-Corporation Subchapter S Corporation
Nonprofit Corporation

21 C-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

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

23 C-Corporation 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)

24 C-Corporation 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

25 Subchapter S Corporation
Taxed like a partnership Avoids double taxation Advantages Profits taxed only once at shareholders personal tax rate S Corp is not a taxpaying entity

26 Subchapter S Corporation
Disadvantages 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

27 Nonprofit Corporation
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

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

29 Limited Liability Company
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

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