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Five Forms of Business Ownership - Coggle Diagram
Five Forms of Business Ownership
Sole Proprietorship
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3 Examples
Barber
Firewood Seller
Horticulturist
15 Facts
Don't worry about double taxation!
You are responsible for any financial debts in the business.
Are you able to handle liabilities by yourself?
If you have employees, are you willing to pay for their injuries and other expenses?
Will the business only run in your lifetime?
Would you want the business to continue after you pass on?
What about selling the business to a new owner?
You need to determine the future of the business!
Bottom line: you and the business are one.
Taxes are decently simple to file.
You run the entire business!
This type of business is easy to create and retain.
You can either do the business yourself or hire employees.
All the profits go straight to you!
Can you use just your personal money to start your business, or do you need to draw out a loan?
Partnership
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3 Examples
GoPro & Red Bull
Casper & West Elm
Nike & Apple
15 Facts
A partnership can either be general or limited.
It's suggested that the partners form a partnership agreement.
A partnership agreement states share of profits, partner responsibilities, and/or the termination of the partnership.
In a general partnership, the partners agree to run a business together, which is the most basic type of partnership.
In a limited partnership, the general partner operates the business, but the limited partner is just an investor.
Partnerships do have an easy tax plan.
Each partner pays taxes on their split of the profits.
A partnership can end at any time.
One or both partners can end the partnership completely, or if one partner passes away.
Would forming a partnership benefit or hurt your business?
This type of business develops when two or more businesses unite for a similar business goal.
It can also be just two people or even two partnerships.
Both partners can discover a whole new customer segment together.
There is exceptional flexibility in a general partnership business.
Some business experts do suggest avoid forming a partnership that divides ownership.
Limited Liability Corporation (LLC)
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3 Examples
Blackberry
Nike
eBay
15 Facts
This type of business is neither a corporation nor a partnership.
An LLC has awesome benefits, including liability protection and flexibility.
Before forming this type of business, seek the wisdom of a lawyer.
To develop an LLC business, it's required to file reports of management with the Secretary of State.
An operating agreement is also required, which states business operations, profits and losses, and the owner or owners.
If you're the owner, the control of the LLC is in your hands.
If you want managers in your LLC, you can choose managers.
According to your operating agreement, you can decide how much control you can give to your managers.
The daily operations are in the control of the managers.
Aside from the managers, as the owner of the business, you can still steer the business in the direction you choose.
Similar to a partnership, the earnings and losses are passed through to the owner, which is you!
You can also report the earnings and losses on your tax returns.
If no tax election occurs, the LLC can be taxed as a single owner or as partners.
If you're a sole proprietor wanting to avoid liability, should you consider forming an LLC?
Should a partnership consider switching to an LLC?
Nonprofit
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3 Examples
Red Cross
PBS
Samaritan's Purse
15 Facts
This type of business does not mean it failed to make money!
This type of business filed for providing community service for different reasons.
Churches and charities are known for providing community service.
Nonproft businesses, however, use donated money to pay for expenses.
Money can be donated to nonprofit businesses from members and/or endorsers of the organization.
Nonprofits aren't allowed to pay their owners or officers.
Their employees can, however, be fairly compensated.
Nonprofits are controlled by their board of directors.
A nonprofit business doesn't have to pay income taxes.
However, a nonprofit business does have to file returns on their actions and intentions.
Similar to corporations, a nonprofit business offers liability protection to everyone in the business.
Before creating a nonprofit business, you should seek a lawyer to learn more and avoid making big mistakes.
Businesses that generate profit from a service could do nonprofit services for charity.
Think to yourself this question: "Can my business perform nonprofit services to serve my community?"
Bottom Line: nonprofit businesses perform nonprofit services not requesting money in return.
Corporation
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3 Examples
Amazon
Walmart
Google
15 Facts
Your personal assets would be safe from creditors!
However, creditors can still get their hands on the assets of the corporation if you're not paying off debts.
Aside from the owner, if the corporation fails to operate, there would be a loss in liability.
Losing liability in a corporation can result in a creditor taking away both your corporate and personal assets.
Keep the corporation running if you want to avoid those creditors!
In a corporation, if you cause harm to someone, you wouldn't be protected from liability!
You are still responsible for your own actions, and the corporation might also be sued!
There is awesome financial flexibility in creating capital.
A corporation can provide you the money plan to pursue your business dreams!
You should seek advice from a lawyer to see what type of corporation is right for your business.
A corporation is developed under state law.
A corporation can lawfully do almost anything a person can do.
Stockholders of a corporation can either be employees or representatives.
One benefit of a corporation is you're protected from liability.
If a corporation is liable for something, the corporate assets would be at risk.
