1 / 17

Choosing The Right Form of Business

Choosing The Right Form of Business. Entrepreneurship Mr Farrar. Objectives:. Describe the different forms of business Analyze and propose the best form of business for a desired business opportunity. What Are Your Choices. How many types of business forms can you name?

elita
Download Presentation

Choosing The Right Form of Business

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Choosing The Right Form of Business Entrepreneurship Mr Farrar

  2. Objectives: • Describe the different forms of business • Analyze and propose the best form of business for a desired business opportunity

  3. What Are Your Choices • How many types of business forms can you name? • sole proprietorship • Partnership • Corporation • S Corporation • “Sub S” Corporation • Limited Liability Corporation • Limited Liability Partnership

  4. Sole Proprietorship • A business owned and operated by one person • 70% of US businesses are operated by sole proprietors • ADVANTAGES • Relatively easy to start • All decisions made by owner • Taxed less than other forms of business • More freedom from government regulation

  5. Sole Proprietorship • DISADVANTAGES • Responsible for all debts or legal judgements • If debts exceed assets, creditors can claim all personal assets (home, car, savings) – called unlimited liability

  6. Partnership • Legal agreement between two or more people • Least common – about 10% of businesses • Profits usually divided in equal proportions according to the amount of time and money invested • Examples: real estate agencies, law offices, medical offices • TWO TYPES – General & Limited • Limited – Each limited partner is liable for any debts ONLY up to the amount of his/her investment in the company • Every limited partnership must have at least one partner with unlimited liability • Limited partners have no voice in management

  7. Partnership Advantages & Disadvantages ADVANTAGES • Less regulation and taxing than a corporation • Fairly easy to establish • Combination of skills & capital DISADVANTAGES • Unlimited liability • Profits taxed as personal income • Disagreements – responsible for partner’s acts • Death/Withdrawal ends partnership

  8. Corporation • Chartered by a state and legally operates apart from the owner(s) • Any size – but usually larger • People who work for corporation are not necessarily owners – stockholders are owners • Governed by boards who hire directors and officers to manage the business in the interest of the stockholders

  9. Corporation (cont) • Stockholders have limited liability – only liable to the extent of his/her investment • DISADVANTAGES • Greater government regulation • Complexity of forming it • Higher taxes on profits and stockholders • Intricate accounting/record keeping • ADVANTAGES • Easier to raise money for expansion • People can easily buy/sell stock to enter or leave organization • Can hire experts in management

  10. S Corporation • Separate and distinct from the corporation’s owners (stockholders) • Can only issue one class of stock • Maximum number of eligible stockholders is 75

  11. Subchapter S CorporationAKA “Sub S” Corporation • Small business taxed like a partnership or proprietorship • Provisions: no more than 35 shareholders • Must be incorporated in the US • No more than 20% of its gross revenues from investment income • No more than 80% of its gross revenues from foreign sources

  12. LLC – Limited Liability Corporation • Can be a sole proprietorship, partnership or corporation • A form of business ownership where the liability is limited to an investor's original capital investment, as opposed to a general partnership under which the partner or owner has unlimited liability.

  13. LLP – Limited Liability Partnership • A form of organization in which the individual partners are protected from the liabilities of the other partners. • Generally, the partners are not responsible for the debts, obligations, or liabilities of the partnership resulting from the actions or negligence of another partner.

  14. What to Consider When Deciding • Three things to keep in mind when choosing a legal form are: • Liability • Taxes • Ownership

  15. 1. Liability • Liability: Legally, corporations are individual entities. As such, the corporation -- not individual shareholders -- are responsible for the actions of the business. In other words, if something goes very wrong, and a corporation is sued, only the assets of the corporation are at stake -- not the owners' personal assets. (There are some exceptions to this rule, but generally, your personal liability is GREATLY limited.)

  16. 2. Taxes • Double taxation: No one likes paying taxes, and you certainly don't want to pay taxes twice -- once on income for the business and then again when that income is distributed as profits to you. Instead, look for a legal form that allows for the profits of the company to "pass through" to the owners, without having to pay corporate taxes first.

  17. Ownership • Ownership: Certain legal business forms limit the number or type of people who can invest in your company. If you're seeking a large number of investors or international investors, find a corporate structure that permits such stockholders.

More Related