1. Forms of Business Ownership
Chapter 5

2. Issues entrepreneurs should consider when evaluating forms of business ownership
Tax Considerations
Liability Exposure
Start-up and future capital requirements
Control
Managerial ability
Business goals
Management succession plans
Cost of formation

3. Sole Proprietorship
a business owned and managed by one individual; the business and the owner are one and the same in the law

4. Advantages of a Sole Proprietorship
Simple to create
Least costly form of ownership to begin
Profit incentive
Total decision making authority
No special legal restrictions
Easy to discontinue

5. Disadvantages of a Proprietorship
Unlimited personal liability
Limited skills and capabilities
Feelings of isolation
Limited access to capital
Lack of continuity of the business

6. The Partnership
A partnership is an association of two or more people who co-own a business for the purpose of making a profit.
A Partnership Agreement is a document that states in writing the terms under which the partners agree to operate the partnership and that protects each partner’s interest in the business.

7. Advantages of the Partnership
Easy to establish
Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited partners
General Partners share owning/operating/managing a business and have unlimited liability, while Limited Partners make financial investments, don’t take an active role in management, and their liability is limited to the amount they have invested.

8. Disadvantages of the Partnership
Unlimited liability of at least one partner
Capital accumulation
Difficulty in disposing of partnership interest
Potential for personality and authority conflicts
Partners are bound by the law of agency

9. Limited Partnerships
A Limited Partnership is a partnership composed of at least one general partner and at least one limited partner.
A Limited Liability Partnership (LLP) is a special type of Limited Partnership in which all partners are limited partners. In many states they must be professionals.

10. Corporations
A corporation is a legal entity apart from its owners that receives the right to exist from the state in which it is incorporated.
A corporation may be Closely Held (shares held by just a few people - often family, employees, etc.) or Publicly Held (large number of shareholders)

11. Advantages of Corporations
Limited liability of stockholders
Ability to attract capital
Ability to continue indefinitely
Transferable ownership

12. Disadvantages of the Corporation
Cost and time involved in the incorporation process
Double taxation
Potential for diminished managerial incentives
Legal requirements and regulatory red tape
Potential loss of control by the founder

13. Other Forms of Ownership
The S-Corporation is a corporation that retains the legal characteristics of a regular C corporation but has the advantage of being taxed as a partnership if it meets certain criteria.
The Limited Liability Company (LLC) is like a S-Corporation (a cross between a corporation and a partnership), but it is not subject to many of the restrictions imposed on S-Corporations.
The Professional Corporation is designed to offer professionals the advantages of corporate ownership
The Joint Venture is much like a partnership, but formed for a specific purpose.