1. ****************** McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved 3-1 Chapter 3 Forms of Ownership of Small Business

2. ****************** McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved 3-2 Forms Of Business Ownership Primary Legal Forms Primary Legal Forms Advantages & Disadvantages Of Each Form Advantages & Disadvantages Of Each Form Other Legal Forms Other Legal Forms Chapter 3

3. ****************** 3-3 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Right Legal Form: Business Factors To Consider  Future Size  Nature  Desired Control  Legal Vulnerability  Tax Implications  Expected Profit (Loss)  Re-investment  Personal Cash Needs PhotoLink/Getty Images

4. ****************** 3-4 Relative Positions Of Legal Forms

5. ****************** 3-5 Legal Form By Industry

6. ****************** 3-6 Legal Form By Industry’s Receipts

7. ****************** 3-7 Proprietorship Advantages/Disadvantages Insert Figure 3.2

8. ****************** 3-8 Partial List Of Federal Tax Forms: Sole Proprietorship  Form 1040: Individual Income Tax Return  Schedule C: Business Profit (Loss)  Schedule SE: Self-Employment Tax  Form 1040EZ: Estimated Tax For Individuals  Form 4562: Depreciation & Amortization  Form 8829: Expenses For Business Use Of Your Home  Employment Tax Forms

9. ****************** 3-9 Schedule C Front Back

10. ****************** 3-10 Partnership Advantages/Disadvantages

11. ****************** 3-11 Operation of General Partnership  Uniform Partnership Act  Partners Responsible For Other Partners’ Actions  Liability:  Personal Property At Risk  All Debts Of Firm  Resolve Disputes Among Partners(?) S. Wanke/PhotoLink/Getty Images

12. ****************** 3-12 Types Of Partnerships GeneralPartner GeneralPartner Partners Liable For Each Others’ Actions GeneralPartner LimitedPartnerLimitedPartnerLimitedPartner Manage With Unlimited Liability Liability = Capital Contribution

13. ****************** 3-13 Partnership: Legal/Tax Documents  Articles of Co-Partnership  Tax Forms oForm 1065 K-1: Partner’s Share Of Income, Credit, Deductions oForm 4562: Depreciation oForm 1040: Individual Income Tax Return oSchedule E: Supplemental Income & Loss oSchedule SE: Self-Employment Tax oForm 1040-ES: Estimated Tax For Individual oEmployment Tax Forms

14. ****************** 3-14 Form 1065 K-1 (Pages 1 & 2) Front Back

15. ****************** 3-15 Form 1065 K-1 (Pages 3 & 4) Front Back

16. ****************** 3-16 Corporation Advantages/Disadvantages

17. ****************** 3-17 Form 1120A Front Back

18. ****************** 3-18 Form 1120 (Pages 1 & 2) Front Back

19. ****************** 3-19 Form 1120 (Page 3 & 4) Front Back

20. ****************** 3-20 Formation Of Corporation  Articles Of Incorporation- Filed With State  Corporate Charter- Comes From State  Buy-Sell Agreement- Include In Articles Of Incorporation

21. ****************** 3-21 Corporate Governance Stockholders Board Of Directors Corporate Officers Elects Appoints

22. ****************** 3-22 S Corporation Exempt From Multiple Taxation Less Than 100 Stockholders One Stock Class- Common No Corporations Or Partnerships Can Be Stockholders Stockholders = U.S. Citizens Or Permanent Residents Early 1990s Lost Appeal Because Of Tax Law Change TAXES Royalty-Free/CORBIS

23. ****************** 3-23 Partial List Of Federal Tax Forms: S Corporation  Form 1120S: Income Tax Return For S Corporation  Form 1120S K-1: Shareholder’s Share Of Income, Credit, Deductions  Form 4625: Depreciation  Employment Tax Forms  Form 1040: Individual Tax Return  Schedule E: Supplemental Income (Loss)  Schedule SE: Self-Employment Tax  From 1040ES: Estimated Tax For Individuals  Other Forms Royalty-Free/CORBIS

24. ****************** 3-24 Form 1120S (Page 1 & 2) Front Back

25. ****************** 3-25 Form 1120S (Page 3)

26. ****************** 3-26 Limited Liability Companies  Since 1977  Benefits:  Limited Liability  Taxed As Partnership  Similar To S Corporation  Owners = Members  Lifespan- Determined At Organization Emma Lee/Life File/Getty Images

27. ****************** 3-27 Other Legal Forms Of Ownership  Limited Liability Partnership oProtects Individual Partners oNot Recognized By Every State  Family Limited Liability Partnership oPartners Related oAgriculture/Family Farms  Professional Service Corporation oProvides Licensed Professional Services oDoctors, Lawyers, & Accountants F. Schussler/PhotoLink/Getty Images

28. ****************** 3-28  Nonprofit Corporations  Civic, Charitable, Educational, Religious  Tax Exempt  Cooperative  Independent Producers  Buys/Sells For Clients  Joint Venture  Fractional Ownership Other Legal Forms Of Ownership (cont’d) Royalty-Free/CORBIS

29. ****************** 3-29 Checklist For Legal Form Evaluation