Four Major Types of Business

Sole Proprietorship, Partnership, LLC, Corporation

Sole Proprietorship

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Definition

a person who owns the business and is personally responsible for its debts.

Advantages

-establish instantly, easily and inexpensively

-don’t need to pay unemployment tax on himself or herself

-Owners may freely mix business or personal assets.

Disadvantages

-Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.

-Owners cannot raise capital by selling an interest in the business.

-Sole proprietorships rarely survive the death or incapacity of their owners and so do not retain value.

Policies or Regulations Follow

-no formal filing or event is required to form a sole proprietorship

-You need not pay unemployment tax on yourself, although you must pay unemployment tax on any employees of the business

Facts

- 22.5 million sole proprietors by 2008

- those previous proprietors made 265 billion dollars, which was about a 5 percent drop from the 2007 figure

- the average annual net income of a sole proprietorship was only $12,000

- more sole proprietorships are being formed as secondary sources of income or part-time jobs.

Examples

-Walmart, JC Penny and Ebay all started out as sole proprietorships

Partnership

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Defintion

-A legal form of business operation between two or more individuals who share management and profits.

Advantages

- two heads (or more) are better than one

- more capital is available for the business

- business is easy to establish and start-up costs are low

- limited external regulation

Disadvantages

- each partner is liable for their share of the partnership debts as well as being liable for all the debts

- risk of disagreements and friction among partners and management

- each partner is an agent of the partnership and is liable for actions by other partners

Policies or Regulations to Follow

- Partners owe fiduciary duties to the partnership

- Profits made in the course of the partnership’s business belong to the partnership.

- Each general partner has the right to participate in the management of the partnership

Facts

-partnerships in 2008: 3,146,006 partnerships

-total net income in 2008: $458.2 billion

Examples

-Apple Inc.

-Google

-Ben & Jerry’s

Limited Liability Company

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Definition

- A hybrid business entity having certain characteristics of both a corporation and a partnership or sole proprietorship. It has availability of pass-through income taxation. It is often more flexible than a corporation, and it is well-suited for companies with a single owner.

Advantages

-owners of the LLC, called "members", are protected from some or all liability for acts and debts of the LLC depending on state shield laws.

-Much less administrative paperwork and record keeping than a corporation.

Disadvantages

-may be more difficult to raise financial capital for an LLC

-management structure of an LLC may be unfamiliar to many. Unlike corporations, they are not required to have a board of directors or officers

Policies or Regulations to Follow

-once business is registered, obtain business licenses and permits

-federal income taxes are passed on to the LLC's members and are paid through their personal income tax

Facts

-The limited liability company ("LLC") has grown to become one of the most prevalent business forms in the entire United States.

-For U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity

Corporation

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Definition

-a separate legal entitity that has been incorporated either directly through legislation or through a registration process established by law

Advantages

-The liability of the owners towards the creditors is limited to their investment in the company.

-Additional capital can be raised easily through stock markets, etc.

Disadvantages

-Establishing a corporation is a complex process and requires registration with the central regulatory authority and listing on a stock exchange which required fulfillment of certain requirements related to the amount of capital,and number of directors.

-corporations have double taxation. First of all the corporate income is taxed at a flat rate and then the dividends paid to the shareholders is taxed

Rules and Regulations to Follow

-State corporation laws require articles of incorporation to document the corporation's creation and to provide provisions regarding the management of internal affairs

-statutes also operate under the assumption that each corporation will adopt bylaws to define the rights and obligations of officers

Facts

-Corporations dominate the global economy

-Giant corporations have become so dominant that it has become very hard for small businesses to compete and survive in the United States.

Examples

-AT&T

-McDonald's

-Microsoft

Sources

"Business & Entrepreneurship - Azcentral.com." Business & Entrepreneurship - Azcentral.com. N.p., n.d. Web. 19 Sept. 2014.

"Entrepreneur - Start, Run and Grow Your Business." Entrepreneur. N.p., n.d. Web. 19 Sept. 2014.

"Business.tas.gov.au." Home. N.p., n.d. Web. 19 Sept. 2014.

"Main Page." Wikipedia. Wikimedia Foundation, 18 Sept. 2014. Web. 18 Sept. 2014.