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Types of Business Ownership

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Title: Types of Business Ownership


1
Types of Business Ownership
  • Chapter 7

2
  • Entrepreneurs need to understand the advantages
    and disadvantages of various types of businesses
    so that they can choose the one that best suits
    their needs.

3
Sole Proprietorship
  • The easiest and most popular form of business
    ownership is the sole proprietorship.

sole proprietorship a business that is owned and
operated by one person
4
Sole Proprietorship
  • The owner of a sole proprietorship
  • receives the profits,
  • incurs any losses, and
  • is liable for the debts of the business.

5
Sole Proprietorship
  • In a sole proprietorship the owner must decide
    how much liability protection he or she needs.

liability protection insurance against the debts
and actions of a business
6
Advantages
  • Sole proprietorship is easy and inexpensive to
    create.

The owner has complete authority over all
business activities.
It is the least regulated form of business
ownership.
The business pays no taxes income is taxed at
the personal rate of the owner.
7
Disadvantages
  • The owner has unlimited liability.

Raising capital is more difficult.
The business is totally reliant on the skills and
abilities of the owner.
The death of owner dissolves the business unless
there is a will to the contrary.
8
Disadvantages
  • The biggest disadvantage of a sole proprietorship
    is financial.
  • In this form of business ownership, the owner has
    unlimited liability.

unlimited liability full responsibility for all
debts and actions of a business
9
Partnership
  • A partnership draws on the skills, knowledge, and
    financial resources of more than one person.

partnership an unincorporated business with two
or more owners who share the decisions, assets,
liabilities, and profits
10
Partnership
  • General vs Limited

general partner a participant in a partnership
who has unlimited personal liability and takes
full responsibility for managing the business
The law requires that all partnerships have at
least one general partner. A partnership may be
set up so that all of the partners are general
partners.
11
Partnership
  • Some partnerships include a limited partner.

limited partner a partner in a business whose
liability is limited to his or her investment a
limited partner cannot be actively involved in
managing the business
12
Partnership
  • Partnerships are inexpensive to create.

General partners have complete control.
Partners can share ideas.
Partners can share ideas.
13
Partnership
  • It is difficult to dissolve one partners
    interest without dissolving the partnership.

There may be personality conflicts.
Partners can be held liable for each others
actions.
14
corporations
  • In a corporation, the owners of the business are
    protected from liability for the actions of the
    company.
  • There are three types of corporations
  • C-Corporation
  • Subchapter S Corporation
  • Nonprofit Corporation

corporation a business that is registered by a
state and operates apart from its owners it
issues shares of stock and lives on after the
owners have sold their interest or passed away
15
C- corporations
  • A C-corporation is the most common corporate
    form.
  • C-Corporations In smaller corporations, the
    founders generally are the major shareholders.

C-corporation an entity that pays taxes on
earnings its shareholders pay taxes as well
shareholders the owners of a corporation
16
C-corporations
  • ADVANTAGES

17
C-corporations
  • ADVANTAGES
  • Corporate shareholders have limited liability,
    but some banks require officers to personally
    guarantee the debts of the company.

limited liability partial responsibility of a
corporate shareholder he or she is responsible
only up to the amount of his or her individual
investment
18
C-corporations
  • DISADVANTAGES

19
S- corporations
  • Avoid double taxation with a

S-corporation A corporation taxed like a
partnership
20
S- corporations
  • Advantages
  • Profits are only taxed once at the shareholders
    personal tax rate.
  • The S-Corporation in not a taxpaying entity
  • Disadvantages
  • Can have no more than 75 stockholders who must be
    U.S. citizens
  • Can have only one class of stock
  • Often restaurants are S-Corporations. If the
    business produces enough cash, this form works
  • If the business shoes a large taxable profit but
    has not generated enough cash to cover the taxes,
    the owners must pay the taxes out of their
    personal earnings

21
NON-PROFIT CORPORATIONS
  • A nonprofit corporation must fall within one of
    four categories
  • religion
  • charity
  • public benefit
  • mutual benefit

nonprofit corporation a legal entity that makes
money for reasons other than the owners profit
it can make a profit, but the profit must remain
within the company
22
limited liability Company
  • There are many benefits to forming a limited
    liability company (LLC).

limited liability company (LLC) a company whose
owners and managers have limited liability and
some tax benefits, but which avoids some
restrictions associated with Subchapter S
corporations
23
limited liability Company
  • LLC is simpler to set up than a corporation
  • LLC allows for the flexibility of a partnership
    structure
  • LLC protects its owners with the limited
    liability of a corporation, its members are not
    liable for the companys debts.
  • LLX is not subject to double taxation. Provides
    the pass-through tax advantages of partnership.
    Profits are taxed personally, and shareholders
    are taxed only once.

24
corporations
  • Before deciding on a legal form, ask yourself key
    questions about
  • Making the Decision
  • willingness to assume liability
  • level of control wanted
  • length of time you expect to own the business
  • your skills
  • access to capital
  • expenses

25
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