Coach Johnson / Lisa Head

Sole ProprietorshipPartnershipCorporation

C-Corporation Subchapter S Corporation Limited Liability Company (LLC)

Owned and Controlled by one personOldest, simplest, most common76% Business in United StatesExamples include:

lawyers, plumbers, carpenters, hairstylists, florists, and farmers

Advantages? Disadvantages?

Easy start up Small Capital and few legal

consideration Zoning and Licenses may be required▪ Not difficult to obtain

Control Take opportunities, react to troubles Personal satisfaction

Profits Stay in house Major decision in choosing this type

Taxation Individual not business

Unlimited Liability Personally responsible for all good and

bad Liability Protection?? How much would

you need Sole Responsibility

All aspects of running business Time, energy, decision making

Limited Growth Potential Small loan or Savings Difficulty getting loan▪ Collateral▪ House▪ Car

More Capital = Expansion

Longevity Firm/Business life Depends on owns:▪ Health▪ Hard Work▪ Time▪ Effort

Name three challenges facing a sole proprietorship

Name two legal considerationsName 2 main advantages for being a

sole proprietor

Owned and Controlled by two or more people

Advantages? Disadvantages?Examples include:

Doctors, lawyers, accountants, and construction companies

General partnerships Enjoy equal decision-making authority Each has unlimited liability

Limited Partnership Provide financial capital in exchange for

a share of the profits▪ Rarely take an active role in business

decisions Liability is limited for some partners

• Easy start up• Low costs and few government

regulations• Partnership contracts

• Outline responsibilities of each• Includes conditions for adding/dropping

partners, and dissolving the partnership

• Specialization• Each can have different duties

• Helps realize specific talents • Pizza Business Example

• Shared Decision Making & Loss• Minimize the chance of mistakes• Secure capital easier than sole• Take hit = keep going

Unlimited Liability Can lose more than you invest Still not a large number of owners, much

riskConflict

Difference of opinions▪ Lower morale▪ Delay decisions▪ Affect overall efficiency

• Lack of longevity• Willingness and Ability of teamwork• Illness• Death• Conflict

A corporation – group of owners (stockholders) share profits (and losses)

Corporations can own property hire workers make contracts pay taxes sue and be sued make and sell products

Stock Holder / Share Holder Owners of the corporation Smaller Companies – Owners Majority Policy Makers

Benefits for Stockholders Limited liability (only as much as they

invest) Can sell ownership at any time

Benefits for Corporations Founders have limited liability Separation of ownership from management Easy to raise capital Longevity

Corporate Issues Corporate charters ▪ expensive and difficult to obtain

Federal and state governments regulate corporations

Slow decision-making process (idea, discuss, present, vote, act)

Stockholder Issues Earn profit without actually working for

the company Lack of control

Shared Issues Corporate profits are TAXED TWICE!!▪ Corporate income▪ Dividend income

Pays taxes on EarningsShareholders Pay taxesProtection for the ownersCertificate of Incorporation

Taxed like a partnership Lower Tax rate

No more than 75 stock holdersMust be US citizensOnly one class of stockRestaurant – Most common

Legal entityOperates to generate revenue for

other purposes other than the owner’s

Can make no profit

Limited Liability – OwnersTax BenefitsSimpler to createFlexibility of a partnership structureProtects OwnersNo Double TaxationNo limitations on the number of

members or their status