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Forms of Business Organization
1.
2. A business organization is an entity aimed at carrying on
commercial enterprise by providing goods or services, to meet
needs of the customers.
3. One of the first decisions you’ll make as a business owners is how
your business will be structured.
• You need to know the advantages and disadvantages of each of
the different forms of business organization to make sure you
make the right decision for your new business.
• All businesses must adopt some legal configuration that defines
the rights and liabilities of participants in the
business’s ownership, control, personal
liability, lifespan and financial structure.
• The form of business determines which income tax return form
to file and the company’s and owner’s legal liabilities.
4. 01 Your (Practical) Vision Regarding The Size And Nature Of Your Business
02
03
04
05
The Level Of Control You Wish To Have
The Level Of “Structure” You Are Willing To Deal With
The Business’s Vulnerability To Lawsuits
Tax Implications Of The Different Organizational Structures
Expected Profit (Or Loss) Of The Business06
5. • The vast majority of small businesses start out as sole
proprietorships.
• These businesses usually are owned by one person, aka the
individual who has day-to-day responsibility for running the
business.
• Sole proprietors can be independent contractors,
freelancers or home-based businesses.
6. 1 2 43
The Owner
Receives
All Profits
Profits Are
Taxed
Only Once
It Is The
Easiest And
Least
Expensive
Form Of
Ownership To
Organize
The Owner Makes
All Decisions And
Is In Complete
Control Of The
Company (But
This Could Also
Be A
Disadvantage)
7. Owners are fully
liable. If
business debts
become
overwhelming,
the individual
owner's finances
will be impacted.
2
Self-employment
taxes apply
to sole
proprietorships.
3
Business
continuity ends
with the death or
departure of the
owner.
4
Raising capital
is difficult
1
8. • In a partnership, two or more people share ownership of a
single business.
• Like sole proprietorships, the law does not distinguish
between the business and its owners.
• The partners should have a legal agreement that establishes
how decisions will be made, how profits will be shared, how
disputes will be resolved, how future partners will be admitted
to the partnership, how partners can be bought out or what
steps will be taken to dissolve the partnership when needed.
9. Separate legal status gives liability
protection.
It is easy to establish.
Profits are taxed only once.
Partners may have complementary skills.
1
2
3
4
10. Business can suffer if
the detailed
partnership agreement
is not in place.
Decision making is
divided.
Profits must be
shared with the
partners.
Partners are jointly
and individually
liable for other
partners’ actions.
1 2 3 4
11. • A corporation is a legal entity that is separate and distinct
from its owners.
• Corporation enjoy most of the rights and responsibilities
that individuals possess: they can enter contracts, loan and
borrow money, sue and be sued, hire employees, own
assets and pay taxes