2 Issues entrepreneurs should consider when evaluating forms of business ownership Tax ConsiderationsLiability ExposureStart-up and future capital requirementsControlManagerial abilityBusiness goalsManagement succession plansCost of formation
3 Sole Proprietorshipa 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 createLeast costly form of ownership to beginProfit incentiveTotal decision making authorityNo special legal restrictionsEasy to discontinue
5 Disadvantages of a Proprietorship Unlimited personal liabilityLimited skills and capabilitiesFeelings of isolationLimited access to capitalLack of continuity of the business
6 The PartnershipA 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 establishComplementary skillsDivision of profitsLarger pool of capitalAbility to attract limited partnersGeneral 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 partnerCapital accumulationDifficulty in disposing of partnership interestPotential for personality and authority conflictsPartners are bound by the law of agency
9 Limited PartnershipsA 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 CorporationsA 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 stockholdersAbility to attract capitalAbility to continue indefinitelyTransferable ownership
12 Disadvantages of the Corporation Cost and time involved in the incorporation processDouble taxationPotential for diminished managerial incentivesLegal requirements and regulatory red tapePotential 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 ownershipThe Joint Venture is much like a partnership, but formed for a specific purpose.