Select a Type of Ownership

Transcription

1 Chapter 7 Select a Type of Ownership 7.2 Choose a Legal Form of Business

2 Sole Proprietorship sole proprietorship a business that is owned exclusively by one person An individual proprietor owns and manages the business and is responsible for all business transactions. most common and simplest form of business Slide 2

3 Advantages of a Sole Proprietorship A sole proprietor has complete control and decision-making power over the business. Sale or transfer can take place at the discretion of the sole proprietor. No corporate tax payments. Minimal legal costs to forming a sole proprietorship. Sole proprietorship is the most common form of U.S. business ownership. Slide 3

4 Disadvantages of a Sole Proprietorship The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company. (unlimited liability) All responsibilities and business decisions fall on the shoulders of the sole proprietor. Investors won t usually invest in sole proprietorships. Slide 4

5 Partnership partnership a business owned by two or more people Advantages of a partnership include: You have a shared financial commitment. You can pool resources, expertise, and strengths. There are limited startup costs. There are few formalities (mostly applicable licenses). Slide 5

6 Disadvantages of a partnership include: Partners may have different visions or goals for the business. There may be unequal commitment in terms of time and finances. There may also be personal disputes. Partners are personally liable for business debts and liabilities. Each partner may also be liable for debts incurred, decisions made, and actions taken by the other partner or partners. You may encounter difficulty in attracting investors. Slide 6

7 At some time, there most certainly will be disagreements in management plans, operational procedures, and future vision for the business. For these and other reasons, general partnership agreements should be drawn up carefully with legal counsel, and signed by all partners. There should be a means in place of dissolving the partnership in the case of death, disability, or if one partner should want out of the business for any other reason, personal or professional. Slide 7

8 Partnership Agreements outline the rights and responsibilities of each of the owners including business name and names of partners investment by each partner delegation of management duties accounting method used profit distribution salaries length of partnership conditions under which partnership can be dissolved asset distribution upon dissolution of partnership Slide 8

9 Slide 9

10 Corporation corporation a business that has the legal rights of a person but is independent of its owners share of stock a unit of ownership in a corporation The individual or group that owns most shares maintains control of the company. Slide 10

11 board of directors a group of people who meet several times a year to make important decisions affecting the company in addition to strategic decisions, they also determine dividend payments shareholders elect the board of directors dividends distributions of corporate profits to shareholders The board of directors is not involved in the daily management of the company. Slide 11

12 Disadvantages of a Corporation The disadvantages of a corporation include: A lawyer is required to establish a corporation because a corporation is complex. it costs money to incorporate Articles of incorporation need to be well written. act as a charter to establish the existence of your corporation in your state, and set forth certain basic information about the new business. Slide 12

13 Corporations are subject to more government regulation than other types of businesses. Reports and tax returns must be compiled and filed in a timely fashion business bank accounts and records must be maintained and kept separate from personal accounts and assets records must be kept of corporate actions, including meetings of shareholders and Board of Directors and licenses must be maintained. Income is taxed twice. corporate income individual income Slide 13

14 Advantages of Incorporation In a corporation, personal liability is limited to the amount of money each shareholder invested in the company. Personal assets of shareholders are protected. Corporations can raise money by selling stock. Slide 14

15 S Corporation S corporation a corporation organized under Subchapter S of the Internal Revenue Code not taxed as a business If the business loses money, owners can use the losses to offset other sources of personal income. tax break Slide 15

16 Limited Liability Company Limited Liability Company (LLC) offers the limited liability protections of a corporation to its owners not subjected to the rules of an S corporation provides the benefits of partnership taxation and limited personal liability may be limited to a business life of 30 years Slide 16