There are several factors to consider when choosing a form of business ownership. The best ownership structure depends on an entrepreneur's specific business and personal circumstances. The key forms of ownership include sole proprietorships, partnerships, limited partnerships, and corporations. Each has advantages and disadvantages related to taxes, liability, capital requirements, and control. The appropriate choice varies based on an entrepreneur's goals, resources, and tolerance for risk.

1. Choosing a Form of Ownership

2. There is no one “best” form of ownership. The best form of ownership depends on an entrepreneur’s particular situation. The key to choosing a form of ownership is understanding how each form’s characteristics affect an entrepreneur’s specific business and personal circumstances. Choosing a Form of Ownership

3. Factors to Consider Tax considerations Liability exposure Start-up capital requirements Control Managerial ability Business goals Management succession plans Cost of formation

4. Forms of Ownership Sole Proprietorship Partnership Corporation

8. Advantages of the Sole Proprietorship Simple to create Least costly form to begin Profit incentive Total decision making authority No special legal restrictions Easy to discontinue

9. Disadvantages of the Sole Proprietorship Unlimited personal liability

10. Liability Features of the Basic Forms of Ownership Sole Proprietorship Claims of Sole Proprietor’s Creditors Sole Proprietor’s Personal Assets

11. Disadvantages of the Sole Proprietorship Limited access to capital Limited skills and capabilities Feelings of isolation Lack of continuity Unlimited personal liability

12. Partnership An association of two or more people who co-own a business for the purpose of making a profit. Take the time to create a written partnership agreement!

13. Advantages of the Partnership Easy to establish Complementary skills of partners Division of profits Larger pool of capital Ability to attract limited partners Little government regulation Flexibility Taxation

14. Disadvantages of the Partnership Unlimited liability of at least one partner

15. Liability Features of the Basic Forms of Ownership Partnership Claims of Partnership’s Creditors Partnership’s Assets General Partner’s Personal Assets General Partner’s Personal Assets

16. Disadvantages of the Partnership Capital accumulation Difficulty in disposing of partnership interest Lack of continuity Potential for personality and authority conflicts Partners bound by the law of agency Unlimited liability of at least one partner

17. Limited Partnership A partnership composed of at least one general partner and one or more limited partners. The general partner in this partnership is treated exactly as in a general partnership. The limited partner has limited liability and is treated as an investor in the business.

18. Liability Features of the Basic Forms of Ownership Limited Partnership Claims of Partnership’s Creditors Partnership’s Assets General Partner’s Personal Assets Limited Partner’s Personal Assets Barrier

19. The Corporation A separate legal entity from its owners. Types of corporations: Domestic - a corporation doing business in the state in which it is incorporated. Foreign - a corporation chartered in one state and doing business in another state. Alien - a corporation formed in another country, but doing business in the United States.

20. The Corporation Types of corporations: Publicly held - a corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges. Closely held - a corporation whose shares are in the control of a relatively small number of people, often family members, relatives, or friends.

21. Advantages of the Corporation Limited liability of the stockholders

22. Liability Features of the Basic Forms of Ownership Corporation Claims of Corporation’s Creditors Corporation’s Assets Shareholder’s Personal Assets Shareholder’s Personal Assets Barrier Barrier

23. Advantages of the Corporation Ability to attract capital Ability to continue indefinitely Transferable ownership Limited liability of stockholders

24. Disadvantages of the Corporation Cost and time of incorporating “Double taxation” Potential for diminished managerial incentives Legal requirements and regulatory “red tape” Potential loss of control by founder(s)