Sole Proprietor Business is owned and run by one individual Nearly 76% of all businesses Owner...
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Transcript of Sole Proprietor Business is owned and run by one individual Nearly 76% of all businesses Owner...
Sole Proprietor
Business is owned and run by one individualNearly 76% of all businesses
Owner receives all of its profits and bear all of its losses.
Sole Proprietor
Owner is personally liable for all of the companies debt Debt is money that it owes to other
businesses or people
Sole Proprietor
AdvantagesEasy to startInexpensive to createGives the owner complete authority over all
business decisionReceives all of the profits
Sole Proprietor
AdvantagesLeast regulated for of ownershipBusiness itself pays no taxes because it is
not separate from the owner○ Income is taxed at the personal rate of the
ownerPersonal rate is lower than the corporate
rate
Sole Proprietor
DisadvantagesThe owner has unlimited liability
○ Means that the owner is fully responsible for all debts and actions of the business
○ Personally responsible from the owner’s personal assetsAssets – things that you own
Raising Capital○ Money
Sole Proprietor
DisadvantagesOwners abilities and skills are limitedDeath of the owners automatically dissolves
the business unless there is a will.
Sole Proprietor
How to start Is as simple as coming up with a company
name○ When using a name other than your own, you
must apply for a Certificate of Doing Business Under an Assumed NameOften called: DBA – doing business as
- Obtain from local government offices- Purpose is to ensure that the name is not being
used in the area
Sole Proprietor
How to start If you are going to hire employees
○ Need an Employer Identification Number (EIN)Comes from the IRS (Internal Revenue Service)Used for tax purposes to track federal income tax
withheld and federal income tax returns
Sole Proprietor
How to start ○ If you are going to be a vendors or retailer
(sell items)Sales Tax Identification Number
- Assigned by state’s Department of Revenue- Retailer acts as an agent for the state by
collecting and remitting the required amount
Partnership
Unincorporated business with two or more owners
Most common business organization Partners share decisions, assets,
liabilities, and profits Requires a DBA (Doing Business As)
when the last names are not used in naming the business
Partnership
Advantages Can draw on the skill, knowledge, and
financial resources of more than one person
Partnership
Two types of Partnership
1. General Participant has unlimited personal liability
and takes full responsibility for managing the business
Any partner can bind the partnership on contracts
Partnership
Two types of Partnership
2. Limited Partners liability is limited to his or her
investment Cannot be actively involved in managing
the business
Partnership
Advantages of PartnershipInexpensive to createShare IdeasSecure investment capital more easily and
in greater amounts
Partnership
Disadvantages of PartnershipDifficult to dissolvePersonality conflicts
○ Usually over authority○ Must have clear roles
Technical Disadvantages○ Can be held liable for other partners actions○ Bound by contracts other partner signs
Partnership
Planning for Successful Partnership
1. Share business responsibilities
2. Put things in writing
3. Be honest about how the business is doing
4. Establish partnership agreement before the business is started
Partnership
Planning for Successful Partnership
1. Have a legal written agreementa. How profits will be shared
b. How responsibilities will be divided
c. What happens if one partner dies or quits
What is a Corporation
CorporationBusiness that is registered by a state and
operates apart from its ownersLives on after the owners have sold their
interests or passed away
C-Corporation
Pays taxes on earnings Shareholders pay taxes as well File Certificate of Incorporation with the
state Issue stocks
Shareholders – Owners of Corporation Required to have a Board of Directors
C-Corporation Advantages
Status – Corporations get help getting loansLimited Liability – Only liable up to the amount of
their individual investmentPerpetual Existence – Continuous life
C-Corporation Advantages
Owners can create pension and retirement funds and offer profit sharing
Tax Advantage – Deduct certain expenses from their reported income (Salaries and Contribution to benefit plans)
C-Corporation Disadvantages
Expensive to start up – Cost $500 to $2500 to create
Taxed – Corporations income is heavily taxed○ Corporation pay tax on profits○ Shareholders pay tax on dividends
Subchapter S Corporation Taxed like a partnership
Avoids double taxation Advantages
Profits taxed only once at shareholders personal tax rate
S Corp is not a taxpaying entity
Subchapter S Corporation Disadvantages
Can have no more than 75 stockholders who must be US citizens
Only have one class of stockCash businesses are S Corps
○ If business produces enough cash, the form works
○ If business shows a large taxable profit but has not generated enough cash to cover the taxes, the owners must pay out of their earnings
Nonprofit Corporation
Businesses that benefit certain causes in the community
Make money for reasons other than the owner’s profit
Business can make profit, however, the profit must remain within the company and not be distributed to shareholders
Limited Liability Company Company whose owners and managers
enjoy limited liability and some tax benefits, but it avoids some restrictions associated with S Corporation