Four Major Types of Business

Sole Proprietorship, Partnership, LLC, Corporation

Sole Proprietorship

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


-establish instantly, easily and inexpensively

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

-Owners may freely mix business or personal assets.


-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


- 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.


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


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


- 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


- 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


-partnerships in 2008: 3,146,006 partnerships

-total net income in 2008: $458.2 billion


-Apple Inc.


-Ben & Jerry’s

Limited Liability Company

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- 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.


-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.


-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


-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


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


-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.


-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


-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.






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