Section 3.2 PowerPoint 03

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Section 3.2 :

Section 3.2 Types of Business Ownership

Date: :

Date: What are the advantages/disadvantages of a sole proprietorship? How do you set up a sole proprietorship? After reading Section 3.2, what is the easiest business to set up? Objective: Bellringer

Liability of Business Owners:

Liability of Business Owners Liability – the legal obligation of a business owner to use personal money and possessions to pay the debts of the business. Unlimited Liability – a business owner can be forced to use personal money and possessions to pay the debts of the business. Limited Liability – a business owner cannot be legally forced to use personal money and possessions to pay business debt.

Liability of Business Owners:

Liability of Business Owners All businesses have liability, but the type of ownership selected to run that business will determine how much liability to the owner of the business.

Sole Proprietorships :

Sole Proprietorships Sole Proprietorship – a legally defined type of business ownership in which a single individual: Owns the business Collects all profits from the business Has unlimited liability for its debt Most small businesses operate as a sole proprietorship and the majority of all businesses in the United States are sole proprietorships.

Advantages of Sole Proprietorships:

Advantages of Sole Proprietorships There are various advantages of sole proprietorships: Simplest and least expensive to start Business income and expenses are reported on the owner’s personal income tax statement Sole decision maker of the business

Disadvantages of Sole Proprietorships:

Disadvantages of Sole Proprietorships There are also many disadvantages of sole proprietorships: Has unlimited liability for the business Difficult to borrow money or attract investors Difficult to expand the business with limited capital

How to set up a Sole Proprietorship:

How to set up a Sole Proprietorship Most communities require a business license, at least in order for you to set up a sole proprietorship. Naming the Business A person may use their own name to describe the sole proprietorship Any name other than the owner’s name is referred to as a trade name or DBA (Doing Business As)

How To Set Up a Sole Proprietorship:

How To Set Up a Sole Proprietorship Tax ID Number The federal government and some states require a business to have a Tax ID Number for tax purposes. Business owners can use their Social Security Number if there is no other employees If employees are hired, an entrepreneur must obtain a Employer Identification Number (EIN)

Date: :

Date: What are the advantages and disadvantages of partnerships and why are partnership agreements necessary to run the business? Name one advantage and one disadvantage of a SP. Objective: Bellringer

Partnership :

Partnership Partnership A legally defined type of business organization in which at least two individuals share: Management Profit liability

Types of Partnerships:

Types of Partnerships General Partnerships All partners have unlimited liability and are responsible for business debt All partners assume personal financial risk Limited Partnerships Structured so that at least one partner (general partner) has limited liability for the business debts Other partners have no say in company’s day to day operations

Advantages of Partnerships:

Advantages of Partnerships Advantages of Partnerships Generally the same as setting up a sole proprietorship in terms of taxes and paperwork The general partner can rely on the entrepreneurial skills and financial backing of at least two individuals instead of just one Can generate more funds from investors Offer an incentive to employees that they can possibly be one day partners of the business

Disadvantages of Partnerships:

Disadvantages of Partnerships Disadvantages of Partnerships Profit is split between the partners Each partner is responsible for the business related actions of all the others Partners could have trouble agreeing on direction of the business

Writing a Partnership Agreement:

Writing a Partnership Agreement Partnership Agreement A legal document that clearly defines how the work, responsibilities, rewards, and liabilities of a partnership will be shared by the partners It also specifies: What happens if a business owner dies How the business could dissolve How the profits and responsibilities will be split up

Date: :

Date: What is a corporation and what are the advantages and disadvantages of a corporation? Log on to the internet and find the answer: What percentage of businesses are considered partnerships in the United States? Wiki Answers result please Objective Bellringer


Corporations Corporation A legally defined type of business ownership in which the business itself is considered a “person” under the law, and limited liability is granted to the business owners

Owners of a Corporation:

Owners of a Corporation Shareholder/Stockholder Owner of the corporation Share of Stock Is a unit of ownership in a corporation Corporations sell these to earn money for the business Dividend Each share of stock may earn its owner a dividend, which is a portion of the corporation’s profit

Types of Corporations :

Types of Corporations C-Corporations Most corporations are c-corps, which are taxed as entities by the federal government The majority of states require a corporation to have a board of directors, consisting of one or more individuals responsible for making decisions about how the business should operate

Types of Corporations :

Types of Corporations Subchapter S Corporations Differs on how it is taxed It is not taxed as an entity, rather the its income or loss is applied to each shareholder and appears on their tax returns. Not taxed twice Has more restrictions than a SP and Partnership and is more complicated and expensive to set up

Types of Corporations :

Types of Corporations Limited Liability Corporation (LLC) Similar to a c- corp , but with simpler operating requirements and tax procedures and greater liability protection for the business owners Owners are called members It is possible for an LLC to be owned by one individual. Very popular set up for professionals because it combines the liability benefits of a corporation with the tax benefits of a SP or Partnership

Non Profit Corporation :

Non Profit Corporation Non-Profit Corporation Defined type of business ownership in which the company operates not to provide profit for its shareholders, but to serve the good of society. Uses profit to further a mission Exists through donations rather than selling shares. Owners have limited liability regarding the company’s debts Special tax treatment from the IRS

Advantages of Corporations :

Advantages of Corporations Advantages of Corporations Shareholders have limited liability Shareholders can end their ownership in the corporation by selling their shares to someone else Shares change hands when the owner of the shares die Corporations can raise more money, more easily than sole proprietorships and partnerships

Disadvantages of Corporations :

Disadvantages of Corporations Disadvantages: More difficult and expensive to set up and maintain Corporations are regulated by state law, so to incorporate means to set up a corporation in accordance with the laws of the particular state where the business is located Corporation profit is taxed twice Pays taxes on the profit it earns and the shareholders pay personal taxes on corporate dividends received


Date What is a cooperative? How many times is a C-Corporation Taxed? Objective: Bellringer


Cooperative Cooperative A business owned, controlled and operated for the mutual benefit of it’s members, people who use its services, buy its goods, or are employed by it. Examples Farms Not as common in the US Share earnings as dividends with members as dividends

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