Business Organization Types

Sole Proprietorship, Partnership, Corporation, S-Corporation, Non-

Profit

Sole Proprietorship• One owner• +/- One decision maker • -------Owners are responsible (liable) for company• +/- Owner and business are considered one ENTITY

(thing)• +/- Owner’s money & business’ money are one

+ If company makes a lot of $ Owner makes a lot- If company loses money or gets sued Owner loses or gets sued++++ 1.) Business’s profits and 2.) owners pay check are taxed ONLY ONCE

• Company purchases are TAX DEDUCTIBLE– Subtract the amount spent for company from amount of

taxable income

Corporation• + Owner and Business are SEPARATE• +++++Owner is not PERSONALLY LIABLE for company’s actions

The owner is now protected from the company’s actions by THE CORPORATE VEIL (like a shield that protects the owner from beings personally sued or responsible)

Corporate veil can be PIERCED if it can be proven that owners allowed a problem/disaster to occur

• -----Money is taxed TWICE1. Company profits are taxed2. Each workers wages or pay check are also taxed/Dividends payed to stock

owners are taxed• Lots of paperwork and somewhat complicated to set up, definitely

need to hire a lawyer to help and costs to set up • Lots of rules and laws they must follow• VERY STRICT, tightly monitored by the government

Tax Deduction • Larry’s Lawn Mowers made 100,000 this year

– Taxes are roughly 1/3 of Gross Income– So normally Larry would pay 1/3 of 100,000 in taxes, about 33,000– This year larry spent 40,000 on a sweet new truck to tow his trailer with all

his mowers– Larry put a Larry’s Lawn Mower Sticker on his truck and drives it everyday– Larry can DEDUCT (subtract) 40,000 from 100,000 and only pay taxes on

what’s now left– So 100,000-40,000 = 60,000 so now larry only has to be 1/3 for taxes on

60,000 instead of on 100,000 – So 1/3 of 60,000 is 20,000 – SO Larry gets the truck he needed and pays 13,000 less in taxes– 40,000 minus what he saved in taxes 13,000 – So 40,000 – 13,000 = 27,000

Partnership

• Two or more owners• Owners decide how to divide up ownership • Owner with the majority of ownership has

more decision making power• Taxed like a Sole Proprietorship ($ taxed once)• Tax deductions allowed like sole proprietorship• Liability is with the owners according to

percentage of ownership

LLC Limited Liability Companybest of corp & Soleproprietorhip/partnership

BEST FOR SMALL COMPANIES THAT TAKE RISKS AND THAT WANT TO APPEAR MORE PROFESSIONAL

• Resembles a corporation in many ways• The choice to be taxed like a partnership though (ONCE)• Easier to set up than a regular corporation • Less rules and laws to follow than a corporation• Liability is less than a partnership or sole prop• Owners are separate from the company• Can be formed or set up by just ONE person • --- Sometimes charged extra startup fees by state gov.• Have to hire a lawyer to set it up for you

– But, MUCH easier to set up than a corporation but harder than a sole proprietorship or parntership

• Can have one or more owners (share holders)• Best for companies like Larry’s Lawnmowers who have RISK but not

necessary for Veronica’s Vinyl who don’t run a RISKY business