2 The Main IdeaEntrepreneurs need to understand the advantages and disadvantages of various types of businesses so that they can choose the one that best suits their needs.
3 Sole ProprietorshipThe easiest and most popular form of business ownership is the sole proprietorship.sole proprietorshipa business that is owned and operated by one person
4 Sole ProprietorshipThe owner of a sole proprietorship:receives the profits,incurs any losses, andis liable for the debts of the business.
5 Sole ProprietorshipIn a sole proprietorship the owner must decide how much liability protection he or she needs.liability protectioninsurance against the debts and actions of a business
6 Advantages Sole Proprietorship Sole proprietorship is easy and inexpensive to create.The owner has complete authority over all business activities.It is the least regulated form of business ownership.The business pays no taxes; income is taxed at the personal rate of the owner.6
7 Disadvantages Sole Proprietorship The owner has unlimited liability. Raising capital is more difficult.The business is totally reliant on the skills and abilities of the owner.The death of owner dissolves the business unless there is a will to the contrary.7
8 DisadvantagesThe biggest disadvantage of a sole proprietorship is financial.In this form of business ownership, the owner has unlimited liability.unlimited liabilityfull responsibility for all debts and actions of a business
9 PartnershipsA partnership draws on the skills, knowledge, and financial resources of more than one person.partnershipan unincorporated business with two or more owners who share the decisions, assets, liabilities, and profits
10 General versus Limited Partners The law requires that all partnerships have at least one general partner.A partnership may be set up so that all of the partners are general partners.general partnera participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business
11 General versus Limited Partners Some partnerships include a limited partner.limited partnera partner in a business whose liability is limited to his or her investment; a limited partner cannot be actively involved in managing the business
12 Advantages Partnerships Partnerships are inexpensive to create. General partners have complete control.Partners can share ideas.Partners can secure investment capital more easily and in greater amounts.12
13 Disadvantages Partnerships It is difficult to dissolve one partner’s interest without dissolving the partnership.There may be personality conflicts.Partners can be held liable for each others’ actions.13
14 The Main IdeaIn a corporation, the owners of the business are protected from liability for the actions of the company.
15 What Is a Corporation? There are three types of corporations: C-corporationSubchapter S corporationnonprofit corporationcorporationa business that is registered by a state and operates apart from its owners; it issues shares of stock and lives on after the owners have sold their interest or passed away
16 C-Corporation A C-corporation is the most common corporate form. an entity that pays taxes on earnings; its shareholders pay taxes as well
17 C-CorporationIn smaller corporations, the founders generally are the major shareholders.shareholdersthe owners of a corporation
18 ability to raise investment money C-CorporationAdvantagesstatuslimited liabilityability to raise investment moneyperpetual existenceemployee benefitstax advantages18
19 AdvantagesCorporate shareholders have limited liability, but some banks require officers to personally guarantee the debts of the company.limited liabilitypartial responsibility of a corporate shareholder; he or she is responsible only up to the amount of his or her individual investment
20 Disadvantages C-Corporation expensive to set up income more heavily taxedsubject to double taxation on incomepays taxes on profitsstockholders taxed on dividends20
21 Nonprofit Corporation A nonprofit corporation must fall within one of four categories:religioncharitypublic benefitmutual benefitnonprofit corporationa legal entity that makes money for reasons other than the owner’s profit; it can make a profit, but the profit must remain within the company
22 Limited Liability Company There are many benefits to forming a limited liability company (LLC).limited liability company (LLC)a company whose owners and managers have limited liability and some tax benefits, but which avoids some restrictions associated with Subchapter S corporations
23 Making the Decision your skills access to capital expenses Before deciding on a legal form, ask yourself key questions about:your skillsaccess to capitalexpenseswillingness to assume liabilitylevel of control wantedlength of time you expect to own the business