Presentation on theme: "LAWS Affecting Business Start-Ups"— Presentation transcript:
1 LAWS Affecting Business Start-Ups Principles of Business
2 What are the different types of business structures? MOST COMMON:Sole ProprietorshipPartnershipCorporationsC-CorpS-CorpNot-for-Profit
3 What are the different types of business structures? SPECIAL TYPES:Limited Liability Company (LLC)Cooperatives
4 Factors to consider when choosing a legal form of ownership: Your vision regarding the size and nature of your business.The level of control you wish to haveThe level of “structure” you are willing to deal withThe business’ vulnerability to lawsuits
5 Factors to consider when choosing a legal form of ownership: Tax implications of the different forms of ownership structuresExpected profit (or loss) of the businessWhether or not you need to re-invest earnings into the businessYour need for access to cash out of the business for yourself.
6 Sole ProprietorshipOne person owns the business and takes the major responsibility for decisions about its operationsMost business start out as sole proprietorshipsAbout 73% of all businesses in the US are sole proprietorships
7 Sole Proprietorship LEGAL STATUS A S.P. is not a separate legal entity; the owner IS the businessFORMATIONLicense to conduct businessRegistration of business nameLIFE SPANBusiness terminates when owner becomes disabled, retires or dies
8 Sole Proprietorship TRANSFER OF OWNERSHIP The owner can sell or give away any asset because there is no legal distinction between the business and the ownerMANAGEMENT RESPONSIBILITYManagement decisions are completely in the hands of the owner; there are no shareholders or Board of Directors to answer to
9 Sole Proprietorship LIABILITY The owner is personally liable (responsible) for all debts and other business liabilities. The owner’s personal assets are fully exposed to risks.TAX ISSUESIncome and expenses are reported on the owner’s personal 1040 Tax Form.
10 Sole Proprietorship Advantages: Easy, inexpensive to create Owner has complete controlLeast regulatedIncome is taxed at personal level (and rate)Disadvantages:Unlimited liabilityRaising capital is difficultOwner may not have the needed skillsDeath of owner dissolves business
11 LiabilityResponsibility for all debts and actions of the business. If anything goes wrong, it is the owner’s responsibility to “make it right.”Brainstorm a list of situations that would cause a business owner legal or financial problems.
12 PartnershipBusiness is owned by two or more people who share the risks, rewards and responsibilities for operationOften chosen by people who provide professional services (doctors, lawyers, accountants)About 7% of all businesses in the US are partnershipsGeneral Partner: member of a partnership who has unlimited liability and takes full responsibility for managing the businessLimited Partner: liability is limited to his/her investment and he/she cannot be actively involved in managing the business
13 Partnership LEGAL STATUS In some ways, a partnership is treated as a separate legal entity because it can own property; but it is not treated as separate when dealing with the feature below…FORMATIONLicense to conduct businessRegistration of business nameWritten agreement between the partners defining ownership, responsibility, etc…
14 PartnershipLIFE SPANBusiness terminates when owner(s) becomes disabled, retire or dieTRANSFER OF OWNERSHIPPartners may sell their portion of the business if it is agreed uponMANAGEMENT RESPONSIBILITYResponsibility is shared between the partners.
15 Partnership LIABILITY The owners are personally liable (responsible) for all debts and other business liabilities.TAX ISSUESIncome and expenses are reported on the owners’ personal Tax Forms.
16 Partnership Advantages: Inexpensive to create General partners have total controlTwo heads are better than oneDisadvantages:If one partner wants out or dies, the partnership endsPartners are held liable for each other’s actionsPersonality conflictsHow does a partnership make up for the shortcomings of a sole proprietorship?
17 Creating a Partnership Agreement Break up into groups of 3-4.Develop a written partnership agreement that could be used when students work together on a project.Share with class.
18 CorporationsA business registered by a state and operates apart from its owners.A corporation lives on after the owners have sold their interests or passed away.Ownership (or equity) in a corporation is represented by shares of stock.Corporations can purchase goods, sue and be sued, and conduct any type of business transaction.
19 Corporation Number of Owners: Separate Legal Entity Status: Formation: C-Corp - UnlimitedS-Corp – 75 or lessSeparate Legal Entity Status:C Corporation is considered a SLE for legal and tax purposesS Corporation for legal purposes ONLYFormation:CHARTER filed with State
20 Corporation Life Span: Sale/Transfer of Ownership: MGT Responsibility: Perpetual LifeSale/Transfer of Ownership:Shareholders are free to sell stock unless restricted by an agreementMGT Responsibility:BOARD OF DIRECTORS
21 Corporation Liability: Taxation: Corporation is a SLE Board of Directors could be help liable for bad decision makingTaxation:Corporation is taxed on incomeShareholders also are taxed on individual incomeDOUBLE TAXATION
22 Corporation ADVANTAGES: Status Limited liability Continuous life Tax advantages (can deduct salaries and contributions to benefit plans)Board of DirectorsDISADVANTAGES:Expensive to start-up ($500 - $2,500)Income is more heavily taxedDouble taxation
23 Limited Liability Company (LLC) Number of Owners:No limitMost states require at least twoSeparate Legal Entity Status:Has SLE statusFormation:Like a parternship
24 Limited Liability Company (LLC) Lifespan:Unless stated in agreement, dies with owner(s)Sale/Transfer of Ownership:Majority of members need to agree on itMGT Responsibility:Like a partnership
25 Limited Liability Company (LLC) Taxation:Profits are shared as determined in the “Articles of Organization”Owners are taxed at personal level on profits
27 LLC ADVANTAGES: Simpler to set up than a corporation Flexibility of a partnershipLimited LiabilityNo double taxationNo limit to number of ownersDISADVANTAGES:Need a good agreement (Article of Organization)Raising funds
28 COOPERATIVEA business is owned and operated by its user-members for the purpose of supplying themselves with goods/servicesMust obtain a charterMembers buy stock/sharesPopular in agriculture, building, housing and credit unionsExamples: Eden Valley Co-op, Meridia Community Credit Union, Lexington Coop