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Business Forms

Business Forms. Sole Proprietorships, Partnerships, Corporations. Sole Proprietorship. Sole Proprietorships—a business owned and managed by a single individual . 75% of all businesses are sole proprietorships. They generate 6% of all US sales. Employ many people. Advantages.

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Business Forms

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  1. Business Forms Sole Proprietorships, Partnerships, Corporations

  2. Sole Proprietorship • Sole Proprietorships—a business owned and managed by a single individual. • 75% of all businesses are sole proprietorships. • They generate 6% of all US sales. • Employ many people.

  3. Advantages • Easy to start up. • Relatively Few Regulations: subject to health codes and zoning laws. • Sole Receiver of Profit: the owner gets to keep all profits after paying income tax. • Full Control: they are their own boss. Can also respond quickly to changes in the marketplace. • Easy to discontinue: no legal obligations besides paying debt.

  4. Disadvantages • Constrained financial resources • Only one person • Banks more hesitant to loan money to a SP than other forms of business • Limits growth potential • Unlimited Liability—biggest disadvantage • The owner’s PERSONAL assets are at risk • If the business fails and stills owes money the SP may be forced to liquidate personal assets to cover debt • Lack of management specialty—the owner must make all decisions he/she may not be qualified to make • Lack of permanence—the owner dies the SP is dissolved

  5. Corporation • Corporation—legal entity, or being. It can acquire resources, take on debt, extend credit, sue and be sued. Owned by stock holders • About 20% of all US businesses are formed this way • Account for about 90% of US sales

  6. Advantages for the Corporation • Can raise money by either selling bonds or stock • Selling bonds is borrowing money from ppl and NOT giving up part ownership of the corporation • Issuing NEW stock also raises money but it also requires corp. to give up part ownership. • Selling bonds or stock make it easier to expand business than SP • Corp. “owners” do not run the firm on a daily basis. They hire others to do so and increase management specialty • Easy to sell investment

  7. Advantages of Corp (cont.) • Long life—corporation does not cease to exist when owners do • Limited liability—stock holders can only lose what they invest

  8. Disadvantages • Hard and expensive to start-up • S-corps are far easier and cheaper to start up and give ppl limited liability but limit the number of shareholders • Double Taxation—firm pays tax on income (money is taxed once). Then stockholders, who may receive dividends, have to pay tax on dividends as well (the same money is taxed again). • More regulation—Financial regulations and minimum wage

  9. Types of Partnerships • General—share equally in both responsibility and liability. • Limited Partnership—only one partner has unlimited liability. The others are “silent partners” and only invest money. • Limited Liability Partnership—all partners have limited liability. Professionals (doctors, lawyers) often form LLP to shield partners from others’ liability.

  10. Advantages • Ease of Start-Up—inexpensive to establish. • Limited Regulation • Larger Pool of Capital—Partners bring more money than one person can. Can hire talented people b/c they can offer more than SPs. (Lawyers esp.) • Taxation—partners pay tax on profit. The business does not pay tax.

  11. Disadvantages • Unlimited Liability—Except in LLP, at least one partner can lose more than they invested including PERSONAL assets (vehicle, money, boat, etc) • Potential for Conflict—more ppl brings more opinions.

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