Selecting A Form of Business Ownership
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Transcript of Selecting A Form of Business Ownership
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Selecting A Form of Business Ownership
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Considerations Cost / Complexity Tax Liability Legal Liability Ownership / Management
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Sole ProprietorshipDefinition: A business that is owned
and operated by one person.
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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
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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
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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.
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PartnershipDefinition: A unincorporated business
with two or more owners.
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PartnershipAdvantages: Easy and cheap to create Business pays no taxes only the
owners do (personal income tax) More ideas/knowledge More start-up money
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PartnershipDisadvantages: Owners have unlimited liability
Profits must be divided Disagreements can occur
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Partnership Examples Simple, low risk businesses
that have two or more owners
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Partnership AgreementDetails: Names, investments How profits and losses will be handled Authority and responsibilities How business will be dissolved
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Corporation (Inc)Definition: A business registered by a
state and operates as it’s own entity that pays taxes on profits.
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CorporationAdvantages: Limited Liability – owners are
responsible only up to the amount they invested.
Able to raise funds by selling stock
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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
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Corporation Examples
Many of the big businesses you see.
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Limited Liability Company (LLC)Definition: A business registered by a
state and operates as it’s own entity and receives tax benefits.
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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
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Limited Liability Company (LLC)
Disadvantages: Cant sell stocks Around $500 to set-up
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Limited Liability Company (LLC)Examples
Many small business with more than one owner that are not in need of outside investing.
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Nonprofit Corporation
Definition Legal entity that makes
money for reasons other then the owners profit.
Profits must remain in company