Survey of Entrepreneurship

Class 13

Introduction to U.S. Legal Business Forms

King Saud University -- Kent State University

Partners in Entrepreneurship

13_Objective

Introduce legal forms of U.S. business entities.

13_Interactivities

Students will complete an exercise in choosing the proper legal structure.

Basic Ownership Structures

• Sole proprietorship• Partnership

– General– Limited– Limited liability partnership

• Corporation – C-Corp– S-Corp

• Limited liability company

Sole Proprietorship

• Pros– Easy, inexpensive– Full control– Minimal legal require-

ments, compliance is easy

– Profits taxed on personal basis

• Cons– Personal liability– No easily available long-

term financing– No one to share the

burden with– Illness/death of the

proprietor dissolves the business

Partnerships

• Pros– Easy to establish– Limited paperwork– Shared responsibilities– Easier to obtain

financing– Profits taxed on personal

basis

• Cons– Unlimited personal

liability– Bounded by actions of

other partners– Divided authority– Loss of a partner will

dissolve the business

Partnerships (cont’d)

• Limited partnerships:– Personal protection for limited partners

• Limited liability partnerships:– Less regulation on the ownership, capital

structure, and division of profits– Newer legal form, few precedents

General (C) Corporation

• Pros– Lifespan independent of

founders/owners– Tax-deductible benefits– Protection of personal

assets– Easy transferability of

interest– Easy to raise capital

• Cons– Considerable start-up

expenses– Complicated cost of

compliance– Dual taxation (profits

and dividends)

S Corp

• Pros– Profits taxed on personal

basis

• Cons– Same as C-Corporation– Cannot own stock if you

are nonresident alien – Complicated

maintenance of status

Limited Liability Company

• Pros– Profits taxed on personal

basis – Personal assets

protected– Simpler to operate than

a corporation– Fewer formalities

• Cons– Different rules apply in

different states– Newer legal form, few

precedents

13_Handout

13_Legal_Form_Exercises

13_Homework

Fill in questions 48 and 49 of your business plan.

13

QuestionsQuestions