Forms of Business

1. BASIC
Forms Of
BusinessVICTORIACABALLERO
MBA630MANAGERIALECONOMICS
MASTERSINBUSINESSADMINISTRATION

2. TYPES OF BUSINESS
OWNERSHIP
Sole Proprietorships
Partnerships
Corporations

3. Entrepreneurs need to understand
the advantages and disadvantages
of various forms of business
ownership so they can choose the
most appropriate form for their
business.

4. SOLE PROPRIETORSHIP
The easiest and most popular
form of business ownership is
the sole proprietorship.
SOLE PROPRIETORSHIP
A business that is owned and
operated by one person

5. SOLE PROPRIETORSHIP
The owner of a sole proprietorship:
Receives the profits
Incurs any losses
Is liable for the debts of the
business

6. SOLE PROPRIETORSHIP
In a sole proprietorship the owner
must decide how much liability
protection he or she needs.
LIABILITY PROTECTION
Insurance against the debts and
actions of a business

7. SOLE PROPRIETORSHIP
Advantages
Sole proprietorship is easy and inexpensive to create.
The owner has complete authority over all business activities.
It is the least regulated form of business ownership.
The business pays no taxes; income is taxed at
personal rate of owner.

8. SOLE PROPRIETORSHIP
Disadvantages
The owner has unlimited liability.
Raising capital is more difficult.
The business is totally reliant on skills and abilities of owner.
The death of owner dissolves the business unless
there is a will to the contrary.

9. DISADVANTAGES
The biggest disadvantage of a sole
proprietorship is financial.
In this form of business ownership, the
owner has unlimited liability.
UNLIMITED LIABILITY
Full responsibility for all debts
and actions of a business

10. PARTNERSHIPS
A partnership draws on skills,
knowledge, and financial resources or
more than one person.
PARTNERSHIP
An unincorporated business with two or
more owners who share the decisions,
assets, liabilities, and profits

11. GENERAL VERSUS
LIMITED PARTNERS
The law requires that all partnerships
have at least one general partner.
GENERAL PARTNER
A participant in a partnership who
has unlimited personal liability and
takes full responsibility for
managing the business
A partnership may be set up so that all of
the partners are general partners.

12. GENERAL VERSUS
LIMITED PARTNERS
Some partnerships include a limited
partner.
LIMITED PARTNER
A partner in a business whose liability is limited
to his or her investment; a limited partner cannot
be actively involved in managing the business.

13. PARTNERSHIPS
Advantages
Partnerships are inexpensive to create.
General partners have complete control.
Partners can share ideas.
Partners can share ideas and secure investment capital more
easily and in greater amounts.

14. PARTNERSHIPS
Disadvantages
It is difficult to dissolve one partner’s interest without
dissolving the partnership.
There may be personality conflicts.
Partners can be held liable for each others’ actions.

15. Sole proprietorship is the easiest and most popular form of
business to create. The owner receives the profits, incurs any
losses, and is liable for the debts of the business.
A partnership is an unincorporated business with two or more
owners. The partners share the decisions, assets, liabilities,
and profits. The partnership can draw on the skills,
knowledge, and financial resources of more than one person,
which is an advantage when seeking loans.

16. In a corporation, the owners of the
business are protected from liability
for the actions of the company.

17. CORPORATION
There are three types of corporations:
CORPORATION
A business that is registered by a state
and operates apart from its owners; it
issues shares of stock and lives on
after the owners have sold their
interest or passed away.
C-corporation
Subchapter S corporation
nonprofit corporation

18. C-CORPORATION
A C-corporation is the most common
corporate form.
C-CORPORATION
an entity that pays taxes on earnings;
its shareholders pay taxes as well

19. C-CORPORATION
In smaller corporations, the founders
generally are the major shareholders.
SHAREHOLDERS
An owner of shares of stock
in a corporation

20. C-CORPORATION
Advantages
Status
Limited liability
Ability to raise investment money
Perpetual existence
Employee benefits
Tax advantages

21. ADVANTAGES
Corporate shareholders have limited
liability, but some banks require
officers to personally guarantee the
debts of the company.
LIMITED LIABILITY
Partial responsibility of a
corporate shareholder; he or she
is responsible only up to the
amount of the individual
investment.

22. C-CORPORATION
Disadvantages
Expensive to set up
Income is more heavily taxed
Subject to double taxation on income
Pays taxes on profits
Stockholders pay taxes on dividends

23. SUBCHAPTER S
CORPORATION
An entrepreneur can avoid the double
taxation of a C-corporation by setting
up a Subchapter S corporation.
SUBCHAPTER S
CORPORATION
A corporation that is taxed like a
partnership; profits are taxed
only once at the shareholder’s
personal tax rate.

24. NONPROFIT CORPORATION
A nonprofit corporation must fall within
one of four categories:
NONPROFIT CORPORATION
A legal entity that makes money for reasons other
than the owner’s profit; it can make a profit, but
the profit must remain within the company
religion
charity
public benefit
mutual benefit

25. MAKING THE DECISION
Before deciding on a legal form, ask
yourself key questions about:
Your skills
Capital
Expenses
Willingness to assume liability
Level of control wanted
Length of time you expect to
own the business

26. A corporation offers limited liability. In other words,
shareholders are liable only up to the amount of their
individual investments.
ADVANTAGES:
A corporation has a more professional appearance, its shareholders are liable
only up to the amount of their individual investment, it can raise money by
issuing shares of stock, it has perpetual existence, it is structured to
accommodate employee benefits, and it has tax advantages.
DISADVANTAGES:
A corporation is expensive to set up and its income is more heavily taxed.

27. The Subchapter S corporation is taxed like a
partnership; profits are taxed only once at the
shareholder’s personal tax rate. Therefore, the
Subchapter S corporation is not a tax-paying entity.
Nonprofit corporations can make a profit, but the profit must
remain within the companies and not be distributed to
shareholders. Any type of business can be a corporation, but a
nonprofit must be formed for religious or for charitable
purposes, public benefit, or religious purposes. C-corporations
are created to make a profit for its owners, or shareholders.

28. The limited liability company protects owners with the limited
liability of a corporation. That is, the company’s owners are
not liable for its debts. It also provides pass-through tax
advantages; shareholders are taxed only once. There are no
limitations on the number of members or on their status.
You should consider your skills, capital, living expenses,
willingness to assume personal liability for any claims against
the business, control desired. Also, ask yourself: do you expect
to have initial losses, or will the business be profitable from the
beginning? Do you expect to sell the business some day?

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