Business Ownership
Corporation
Sole Proprietorship
Partnership
S Corporation
Owned & operated by one person
Accountant
Janitor
Salesperson
Manager
Types of Sole Proprietorships
Clothing boutique - Retailing
Corner grocery - Service
Small, independent farmers - Agriculture
Advantages
Easy to set-up and open a business
Ownership Pride
No attorney needed
Proud of his/her accomplishment
Credit for solving day-to-day issues
Profit
Strong incentive to succeed
Attractive incentive
Great satisfaction/idea
Tax Returns
Profits taxed as personal income of the owner
Own boss
Make every decision for the business
Make your own schedule
You are the superior authority
Disadvantages
Unlimited liability
Business owner is personally responsible for all the debts of the business
Lack of continuity
Owner's personal property could be taken and sold if necessary
If illness or death occurs to the owner, the business will cease
Unless it is a profitable enterprise
Unless his/her heirs will take over
Lack of $$$
Who will repay the loan if the owner passes away?
Limited ability to to borrow $$$
Limited Management Skills
May need to hire people to work for you
Employees
Managers
Accountants
Janitors
Association of two or more people to be co-owners of a business
10% of all American businesses
Types of Partners
General Partner
Person who has full/shared responsibility of the business operation
Unlimited liability of debts
Must give notice to creditors, customers, and suppliers once the partner withdraws from the business
Limited Partner
Person who invests money in the business with no management duties/responsibility or liability
Receives portion of profits and tax benefits
Articles of Partnership
Agreement stating the terms of the partnership
Written or oral
Advantages
Simple to start a partnership
Partners pool their funds
Disadvantages
Allows for more capital availability
Approve larger loans
Extend more credit
Operating a business with the help of another person = A strong motivating force
Pooled talents
One's weakness may be the other's strong suit
All profits belong to the owners
No income tax
Unlimited liability for the general partner
Each partner is responsible for debts, taxes, or actions incurred despite whose fault it was
One partner may do something that makes the other partner uncomfortable
Bringing a spouse or relative into the business
A partner wants wanting to withdraw more money from the business
Partnerships are terminated after a general partner passes away
Artificial person created by law, with most of the legal rights of a real person. Exists only on paper!
Right to start/operate a business
Right to purchase/sell property
Right to borrow $$$
Right to sue or be sued
Right to enter into binding contracts
This is where stocks and stockholders come into play
Closed Corporation: Stock is owned by few and not for sale to the public
Mars - M & M's, Milky Way, Snickers, etc.
Open Corporation: Where stock can be bought and sold by any individual
Apple
Microsoft
Sony
Your choice of becoming incorporated should be thought of after you see that corporation is the best business form for you
Domestic Corporation: Incorporated business in the state
All other states where it does business
Articles of Corporation
Established after a home state has been chosen
Contract/Corporate Charter
Corporate Structure
Board of Directors: Governing body elected by stockholders
Set Company goals
Develop general plans/strategies
Overall operation/appointing corporate officers
Corporate Officers
Help board make plans, hire, daily activities
President
Chairman of the Board
Secretary
Treasurer
Advantages
Disadvantages
Limited liability
Corporation's assets are what creditors claim in case of lawsuit or failure of corporation
Capital Raising
Raise additional sums of money by selling stock
Corporation exists like a person: independently
The corporation does not cease to operate after a withdrawal, death, or incompetence of an individual.
Specialized Management: Hire highly skilled, knowledgeable, and talented managers
Opportunity for advancement
Expensive and complex to start
Attorney is almost always necessary to fill out legal forms
Conflict within the Corporation
Stress to increase sales revenue
Stress to reduce expenses
Stress to increase profits
Lay-off employees
Reduce salary of employees
Double taxation
Corporate income
Personal income of stockholders
Can't keep operations confidential, which leads to competitors studying each others operations
Corporation in which the owners are taxed as partners in a partnership
Limited-Liability Company: Combination of corporation and partnership benefits without the restrictions and disadvantages of them.
Pass-through taxation
Limited liability
Management flexibility
BMW
Not-for Profit Corporations: Organized for social, educational, religious, or other service rather than to own a profit
Charities
Private schools
Colleges
Museums
Tax-exempt
Habitat for Humanity