Business Ownership

What type of business should you consider?

Big image

Four Main Types of Businesses

A sole proprietorship is also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.


The advantage of having a sole proprietorship is that a sole proprietor can own the business for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her heirs.

Some more advantages of having one are:

A sole proprietor has complete control and decision-making power over the business.

Sale or transfer can take place at the discretion of the sole proprietor.

No corporate tax payments

Minimal legal costs to forming a sole proprietorship

Few formal business requirements

Some disadvantages of having a sole proprietor business are:

The sole proprietor of the business can be held personally liable for the debts and obligations of the business (this risk extends to any liabilities incurred as a result of acts committed by employees of the company).

All responsibilities and business decisions fall on the shoulders of the sole proprietor.

Investors won't usually invest in sole proprietorships.


Some policies and regulations that a sole proprietor must have are:

Sole Proprietorships- No employees

Taxes- Business owners must file multiple tax forms

Social Security Number- Business owners must file all taxes under personal SSN

Estate Planning- In case of the death of the sole proprietor, one must plan for this and be able to sell the company once this event occurs


Facts about Sole Proprietorships:

- They are solely liable for all of its operations and are concurrently entitled to all earnings as well as total control over its dealings.

- Does not represent a "legal entity," and varying distinctions of it will not provide any means of achieving such a status.


Examples of real world sole proprietorships:

-Construction

-Educational services

-Health care and social assistance

-Information

-Manufacturing

A business entity in which two or more co-owners contribute resources, share in profits and losses, and are individually liable for the entity's actions.


The advantage of having a partnership business is that a partnership means that you have two or more brains working to solve problems and help your business succeed.

Some more advantages of having one are:

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

  • More capital is available for the business

  • You’ll have greater borrowing capacity

  • High-calibre employees can be made partners

  • There is opportunity for income splitting, an advantage of particular importance due to Resultant tax savings

  • Partners’ business affairs are private

  • There is limited external regulation

  • It’s easy to change your legal structure later if circumstances change.

  • Some disadvantages of having a partnership business are:

  • The liability of the partners for the debts of the business is unlimited

  • Each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts

  • There is a 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

  • If partners join or leave, you will probably have to value all the partnership assets and this can be costly.


  • Some policies and regulations that a partnership must have are:

    Naming the Partnership- This step formally establishes the business entity for legal purposes.

    Contributions to Partnership- A partnership agreement must include the capital or property each of the partners is investing in the company. The agreement should also include what roles each partner will be performing.

    Allocating Profits and Losses- This section of your agreement determines how much money each partner stands to make, including what percentage of profit each member may receive, as well as what percentage of business losses each partner must absorb.

    Determining Partnership Authority- Clearly defining each partner's power within the company to enter into binding agreements keeps the partnership from spreading itself too thin and making bad business decisions.


    Facts about Partnerships:

    - A partnership involves two or more people (up to 20, with some exceptions)

    - There are two types of partnership – general and limited.


    Examples of real world sole proprietorships:

    -Warner Bros

    -McDonalds

    -Hewlett Packard

    -Microsoft

    A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.


    The advantage of having a limited liability partnership business is that a limited liability partnership, an LLP, also offers limited liability protection to the owners that is similar to corporations.

    Some more advantages of having one are:

  • Limited Liability Provisions

  • Tax Treatment Pros

  • Liability protection for all partners

  • Required by law

    Some disadvantages of having a partnership business are:

  • Multi-state considerations

  • Liability Protection


  • Some policies and regulations that a limited liability partnership must have are:

    Choose a Business Name

    File the Articles of Organization

    Create an Operating Agreement

    Obtain Licenses and Permits

    Hiring Employees

    Announce Your Business


    Facts about LLP's:

    - Owners name's: Limited Liability Partners

    - Name for ownership interest: Limited Liability Partnership Interests

    - Document that creates the entity: Certificate of Limited Liability Partnership
    (also know as a Registration Statement)

    - Documents that control operating procedure: Limited Liability Partnership Agreement



    Examples of real world limited liability partnerships:
    - Large legal and accounting firms
    - Organizations made up of doctors and healthcare professionals
    - Venture capital and other, similar, investment funds

    A corporation is a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.


    The advantage of having a corporation business is that a corporation Generally, a corporation's shareholders are not liable for any debts incurred or judgments handed down against the corporation. Shareholders only risk their equity in the corporation. Corporations may be able raise additional funds by selling shares in the corporation.

    Some more advantages of having one are:

  • Corporations may be able raise additional funds by selling shares in the corporation.

  • Corporations may deduct the cost of benefits it provides to employees and officers.

  • Some corporations may be able to elect treatment as an S corporation, which exempts them from federal income tax other than tax on certain capital gains and passive income.

  • Some disadvantages of having a corporation business are:

  • Forming a corporation requires more time and money than forming other business structures.

  • Governmental agencies monitor corporations, which may result in added paperwork.

  • Corporate profits may be subject to higher overall taxes since the government taxes profits at the corporate level and again at the individual level, if such profits are distributed to the shareholders. Furthermore, a corporation may not deduce from its business income any dividends it pays to its shareholders.


  • Some policies and regulations that a corporation must have must have are:

    Employee Conduct

    Equal Opportunity

    Attendance and Time Off

    Substance Abuse


    Facts about Corporations:

    - Corporations are required to pay federal, state, and in some cases, local taxes.


    Examples of real world corporations:
    - 7- Eleven

    - Aflac

    - American Express

    - Bank of America

    - Campbell Soup

    Types Of Business Structures