Presentation on theme: "“A Complete Discussion of Legal Forms of Ownership”"— Presentation transcript:
1 “A Complete Discussion of Legal Forms of Ownership” EntrepreneurshipUnit 3.2ACreating the Business Plan“A Complete Discussion of Legal Forms of Ownership”
2 Forms of Legal Ownership Sole ProprietorshipPartnershipCorporationSubchapter S CorporationC-CorporationOther legal form of OwnershipLimited Liability Company
3 Sole Proprietorship Owned and operated by one person Easy to create Receives all profits, incurs any losses, and is liable for the debts of businessMost entrepreneurs often switch to another form that provides more personal financial protection as the business grows
4 Sole Proprietorship Advantages: Easy and inexpensive to create Owner receives all profitsLeast regulated form of ownershipBusiness pays no taxes. Owner pays personal income taxes which is a lower rate than the corporate tax rate.
5 Sole Proprietorship Disadvantages: Unlimited liability Full responsibility for all debtsOwners personal assets are at risk (i.e., home, car, etc.)May have insufficient skillsUpon death, the business dissolves
6 Partnership A business with two or more owners Partners do not have to share a business equallyHow the partnership interests are divided are spelled out in the Partnership Agreement.
7 Partnership Advantages Inexpensive and easy to create Share ideas, abilities, and financial obligationsOwners pay taxes as personal income which is taxed at lower rate.
8 Partnership Disadvantages Difficulty in dissolving partnership Personality conflictsPartners held liable for each other’s actions
9 Corporation Registered by the state and operates apart from its owners A corporation lives-on after the owners die or have sold interestOwnership is represented by shares of stock, public or private
10 Corporation Advantages Corporations are separate legal entities from the ownersPerpetual Existence: The corporation is not dissolved upon death of ownersShareholder’s liability is limited to amount investedHowever, officers may be personally liable; i.e. Enron’s late Kenneth Lay
11 Corporation Disadvantages Expensive to start and requires a lot of legal paperwork. Must hire attorneys.Corporation owners are seemingly double-taxedThe business’ profits are taxed at a higher corporate rateThe owner’s income from the business (or shareholder’s dividends) is also taxed as personal income
12 2 Types of CorporationsC-CorporationSubchapter S Corporation
13 C-CorporationThe most common corporate form for large businesses (i.e., Federal Express, Microsoft)Can create status that may assist in getting loansShareholders are owners of the corporationRequired to have an elected Board of Directors to make decisions for the companyStructured to accommodate employee benefits; i.e., pensions, retirement plans, and profit sharing
14 Subchapter S Corporation Designed for owners of smaller companies who want the liability protection of a corporation, but want to avoid double taxationPass-through Taxation: Profits are taxed once at shareholder’s personal tax rateShareholders liable to amount investedIn smaller private corporations, the founders generally hold all–or a majority–of the stock.
15 Other Forms of Ownership Limited Liability CompanyNonprofit CorporationsIMPORTANT: Before you start your company… Check with your state, accountants, or attorneys to determine which form of legal ownership most benefits your needs, company size, financial status, and issues of liability.
16 Source:Allen, Kathleen R., & Meyer, Earl (2006). “Entrepreneurship and Small Business Management.” New York: Glencoe, p. 143