Sole Proprietorship Partnership Corporation Limited Liability Company TYPES

Sole Proprietorship Partnership Corporation Limited Liability Company TYPES OF BUSINESS OWNERSHIP

Sole Proprietorship �Owned and operated by one person or family �Owner receives all profits �Owner incurs any losses and is liable for the debts of the business

Advantages � Easy to create � Owner receives all profits � Least regulated form of business � Business does not pay taxes ◦ Taxes included in owner’s personal income tax ◦ Personal taxes are at lower rates than corporate taxes. Disadvantages � Unlimited liability � Full responsibility for all debts � Owner’s personal assets are at risk � Requires owner to be knowledgeable in all aspects of the business � Business dissolves upon the death of the owner Sole Proprietorship

Partnership �Two or more owners �Ownership may or may not be divided equally �Partnership agreement defines partners’ interests in the business

Advantages �Easy to create �Easier to acquire start -up capital (shared expenses) �Share ideas, skills, and financial obligations �Owners pay taxes as personal income tax Disadvantages �Difficult to dissolve partnerships �Potential for personality conflicts / disagreements in business decisions �Partners are liable for each others’ actions Partnership

Corporation �Registered by the state �Operates apart from its owners �Unlimited life ◦ Does not dissolve upon owner’s death �Represented by shares of public and private stock

Advantages �Separate legal entity from owners �Perpetual existence �Liability is limited to the amount invested by the shareholder ◦ Note: Officers may be personally liable. Consider Enron’s late Kenneth Lay. Disadvantages �Expensive to start up ◦ Requires extensive legal paperwork; need attorneys �Owners are seemingly doubletaxed ◦ Business profits taxed at a higher corporate ◦ Owner’s income from the business are taxed as personal income Corporation

Limited Liability Company (LLC) � Relatively new form of ownership � Hybrid of a partnership and a corporation � Characteristics include: ◦ Owners are shielded from personal liability ◦ Profits and losses pass directly to the owners without taxation of the company itself

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