Selecting A Form of Business Ownership

Considerations Cost / Complexity Tax Liability Legal Liability Ownership / Management

Sole ProprietorshipDefinition: A business that is owned

and operated by one person.

Sole ProprietorshipAdvantages: Very easy and cheap to create Business pays no taxes only the

owner does (personal income tax) Owner receives all profits and

makes all decisions

Sole ProprietorshipDisadvantages: Owner has unlimited liability

Full responsibility for all debt and actions of the business.

Owner’s personal assets (cars, home, savings) are at risk!!!!!

Limited skills, expertise, and funding

Sole Proprietorship Examples Part-time businesses that are

not risky. E.G. Grandma’s sweater making

Any business can, in theory, be a sole proprietorship.

PartnershipDefinition: A unincorporated business

with two or more owners.

PartnershipAdvantages: Easy and cheap to create Business pays no taxes only the

owners do (personal income tax) More ideas/knowledge More start-up money

PartnershipDisadvantages: Owners have unlimited liability

Profits must be divided Disagreements can occur

Partnership Examples Simple, low risk businesses

that have two or more owners

Partnership AgreementDetails: Names, investments How profits and losses will be handled Authority and responsibilities How business will be dissolved

Corporation (Inc)Definition: A business registered by a

state and operates as it’s own entity that pays taxes on profits.

CorporationAdvantages: Limited Liability – owners are

responsible only up to the amount they invested.

Able to raise funds by selling stock

CorporationDisadvantages: Expensive to set-up ($500-$2,500)

Need Articles of Incorporation & bylaws

Extensive record keeping Double taxation

Corporate Profits and owners income are both taxed

Corporation Examples

Many of the big businesses you see.

Limited Liability Company (LLC)Definition: A business registered by a

state and operates as it’s own entity and receives tax benefits.

Limited Liability Company (LLC)

Advantages: Simpler to set-up than a

corporation Limited liability for owners Not subject to double taxation Owners only pay taxes once

Limited Liability Company (LLC)

Disadvantages: Cant sell stocks Around $500 to set-up

Limited Liability Company (LLC)Examples

Many small business with more than one owner that are not in need of outside investing.

Nonprofit Corporation

Definition Legal entity that makes

money for reasons other then the owners profit.

Profits must remain in company