Agenda

• Today: Legal Form of Business• Tuesday: Legal Considerations• Wednesday: Developing a Business

Name (and Legal Search)• Thursday: Guest Speaker—Herzing • Friday: Section 5: Legal

Considerations (lab)

Types of Business Ownership

Sole ProprietorshipsPartnershipsCorporations

What is a sole proprietorship?

• Owner is responsible for business activities

• Makes up 76% of all businesses• Only one responsible for liability

Advantages

• Easy & inexpensiveEasy & inexpensive• Complete authorityComplete authority• Least regulated Least regulated

form of ownershipform of ownership• Business pays no Business pays no

taxes; not separate taxes; not separate from ownerfrom owner

• Tax rate is lowerTax rate is lower

Disadvantages

• Unlimited liabilityUnlimited liability• Difficult to raise Difficult to raise

capitalcapital• Limited on skills & Limited on skills &

abilitiesabilities• Death dissolves Death dissolves

businessbusiness

Things you will needThings you will need

• DBA: Doing business as needs to be applied for

• EIN: Employer Identification Number if employees are going to be hired

• Strive to be successful!

What is a partnership?

• More than one person shares the business decisions and outcomes

• Partners decide together the outcome of the business

Types of Partnerships

• General• Limited• Joint venture• Strategic Alliance

Advantages Advantages

• Inexpensive to create• General partners have complete

control• Share ideas• Secure investment capital

– more easily– in greater amounts

Disadvantages

• Difficult to dissolve one partner’s interest in the business without dissolving the partnership

• Personality conflicts• Bound by laws of agency

– held liable for each other’s actions– can be sued for breach of contract

How can we be successful How can we be successful as a partnership?as a partnership?

• Share business responsibilities• Put things in writing• Always be honest with each other• Consider partner’s needs before

committing to the partnership• Establish a partnership

agreement

What is a corporation?

• chartered or registered by the state

• legally operates apart from its owner or owners

• lives on after owners have sold their interest or passed on

Types of CorporationsTypes of Corporations

C-corporation• Most common form• Protect from being sued for actions & debts• File a Certificate of Incorporation• Appoint a board of directors• Limited to 30-50 stockholders in most states

AdvantagesAdvantages

• Raise capital by issuing shares of stock– Common Stock– Preferred Stock

• Limited Liability

• Create pension & retirement funds

• Offer profit sharing plans to their employees

DisadvantagesDisadvantages

• Pose financial problems• Expensive to set up• Cost between $500 to

$2,500 in fees• Income is heavily taxed• Pay taxes on profits• Pay stockholders

earnings or dividends• Stockholders pay income

taxes on their dividends

Types of CorporationsTypes of Corporations

Subchapter S corporation• Taxed like a sole proprietorship or

partnership; no double taxation• Profits are passed through the

corporation and taxed only once• Usually cash businesses• Shareholders must be U.S. citizens

or residents

Types of CorporationsTypes of Corporations

Nonprofit Corporation• Legal entities that make money for

reasons other than the owners’ profit• Profit must remain within the company• Four categories

Charity, public benefit, religion & mutual benefit

Types of CorporationsTypes of Corporations

Limited Liability (LLC)• Members not liable for company debt• Pass-through tax advantages of

partnerships• Shareholders are only taxed once• Law firms & medical firms• Popular with foreign investors & family

owners