1. Types of Business Ownership
Chapter 7

2. Entrepreneurs need to understand the advantages and disadvantages of various types of businesses so that they can choose the one that best suits their needs.

3. Sole Proprietorship
The easiest and most popular form of business ownership is the sole proprietorship.
sole proprietorship
a business that is owned and operated by one person

4. Sole Proprietorship The owner of a sole proprietorship:
receives the profits,
incurs any losses, and
is liable for the debts of the business.

5. Sole Proprietorship
In a sole proprietorship the owner must decide how much liability protection he or she needs.
liability protection
insurance against the debts and actions of a business

6. Advantages Sole proprietorship is easy and inexpensive to create.
The owner has complete authority over all business activities.
It is the least regulated form of business ownership.
The business pays no taxes; income is taxed at the personal rate of the owner.

7. Disadvantages The owner has unlimited liability.
Raising capital is more difficult.
The business is totally reliant on the skills and abilities of the owner.
The death of owner dissolves the business unless there is a will to the contrary.

8. Disadvantages
The biggest disadvantage of a sole proprietorship is financial.
In this form of business ownership, the owner has unlimited liability.
unlimited liability
full responsibility for all debts and actions of a business

9. Partnership
A partnership draws on the skills, knowledge, and financial resources of more than one person.
partnership
an unincorporated business with two or more owners who share the decisions, assets, liabilities, and profits

10. General vs Limited Partnership
The law requires that all partnerships have at least one general partner.
A partnership may be set up so that all of the partners are general partners.
general partner
a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business

11. Partnership Some partnerships include a limited partner.
a partner in a business whose liability is limited to his or her investment; a limited partner cannot be actively involved in managing the business

12. Partnership Partnerships are inexpensive to create.
General partners have complete control.
Partners can share ideas.
Partners can share ideas.

13. Partnership
It is difficult to dissolve one partner’s interest without dissolving the partnership.
There may be personality conflicts.
Partners can be held liable for each others’ actions.

14. corporations
In a corporation, the owners of the business are protected from liability for the actions of the company.
There are three types of corporations:
C-Corporation
Subchapter S Corporation
Nonprofit Corporation
corporation
a business that is registered by a state and operates apart from its owners; it issues shares of stock and lives on after the owners have sold their interest or passed away

15. C- corporations A C-corporation is the most common corporate form.
C-Corporations: In smaller corporations, the founders generally are the major shareholders.
C-corporation
an entity that pays taxes on earnings; its shareholders pay taxes as well
shareholders
the owners of a corporation

16. ability to raise investment money
C-corporations
ADVANTAGES
status
limited liability
ability to raise investment money
perpetual existence
employee benefits
tax advantages

17. C-corporations ADVANTAGES
Corporate shareholders have limited liability, but some banks require officers to personally guarantee the debts of the company.
limited liability
partial responsibility of a corporate shareholder; he or she is responsible only up to the amount of his or her individual investment

18. C-corporations DISADVANTAGES expensive to set up
income more heavily taxed
subject to double taxation on income
pays taxes on profits
stockholders taxed on dividends

19. NON-PROFIT CORPORATIONS
A nonprofit corporation must fall within one of four categories:
religion
charity
public benefit
mutual benefit
nonprofit corporation
a legal entity that makes money for reasons other than the owner’s profit; it can make a profit, but the profit must remain within the company

20. Corporations- limited liability
There are many benefits to forming a limited liability company (LLC).
Simpler to set up than a corporation.
Allows for the flexibility of a partnership structure.
Protects its owners with the limited liability of a corporation.
No subject to double taxation.
No limitations on the number of members or their status.
limited liability company (LLC)
a company whose owners and managers have limited liability and some tax benefits, but which avoids some restrictions associated with Subchapter S corporations

21. corporations
Before deciding on a legal form, ask yourself key questions about:
Making the Decision
your skills?
access to capital?
Expenses?
willingness to assume liability?
level of control wanted?
length of time you expect to own the business?