Types of Business

7 Ownership

Section
7.1 Sole Proprietorships and Partnerships

Section
7.2 Corporations

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

The Main Idea

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.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

Sole Proprietorship

The easiest and most sole

soleproprietorship
proprietorship
popular form of business aabusiness
ownership is the sole businessthat
thatisisowned
ownedand
and
operated
operatedby
byone
oneperson
person
proprietorship.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

Sole Proprietorship

The owner of a sole proprietorship:

receives the profits,

incurs any losses, and
is liable for the debts of the business.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

Sole Proprietorship

In a sole proprietorship the liability

liabilityprotection
protection
owner must decide how insurance
much liability protection insuranceagainst
againstthe
thedebts
debtsand
and
actions
actionsofofaabusiness
business
he or she needs.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

Sole Proprietorship
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.

6
Sole Proprietorship
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.

7
SECTION 7.1
Sole Proprietorships
and Partnerships

Disadvantages

The biggest disadvantage unlimited

unlimitedliability
liability
of a sole proprietorship is full
financial. fullresponsibility
responsibilityfor
forall
alldebts
debtsand
and
actions
actionsofofaabusiness
business
In this form of business
ownership, the owner has
unlimited liability.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

Partnerships

A partnership draws on the partnership

partnership
skills, knowledge, and an
financial resources of more anunincorporated
unincorporatedbusiness
businesswith with
two or more owners who share
two or more owners who share
than one person. the
thedecisions,
decisions,assets,
assets,liabilities,
liabilities,
and
andprofits
profits

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

General versus Limited Partners

The law requires that all general

generalpartner
partner
partnerships have at least aaparticipant
one general partner. participantininaapartnership
partnershipwho who
has
has unlimited personal liabilityand
unlimited personal liability and
A partnership may be set up takes full responsibility for
takes full responsibility for
so that all of the partners managing
managingthe thebusiness
business
are general partners.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.1
Sole Proprietorships
and Partnerships

General versus Limited Partners

Some partnerships include limited

limitedpartner
partner
a limited partner. aapartner
partnerininaabusiness
businesswhose
whose
liability
liability is limited to his orher
is limited to his or her
investment; a limited partner
investment; a limited partner
cannot
cannotbe beactively
activelyinvolved
involvedinin
managing
managingthe thebusiness
business

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

Partnerships
Advantages

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

Partners can secure investment capital more easily and in greater

amounts.

12
Partnerships
Disadvantages

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.

13
SECTION 7.2 Corporations

The Main Idea

In a corporation, the owners of the business are protected from
liability for the actions of the company.

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.2 Corporations

What Is a Corporation?

There are three types of corporation

corporation
corporations: aabusiness
businessthat thatisisregistered
registeredby byaa
C-corporation state
stateand
andoperates
operatesapart apartfrom
fromits
its
Subchapter S corporation owners;
owners;ititissues
issuesshares
sharesofofstock
stock
and lives on after the owners
and lives on after the owners
nonprofit corporation
have
havesold
soldtheir
theirinterest
interestororpassed
passed
away
away

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.2 Corporations

C-Corporation

A C-corporation is the C-corporation

C-corporation
most common corporate an
form. anentity
entitythat
thatpays
paystaxes
taxeson
on
earnings;
earnings;its
itsshareholders
shareholderspay
pay
taxes as well
taxes as well

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.2 Corporations

C-Corporation

In smaller corporations, the shareholders

shareholders
founders generally are the the
major shareholders. theowners
ownersofofaacorporation
corporation

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

C-Corporation
Advantages

status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages

18
SECTION 7.2 Corporations

Advantages

Corporate shareholders limited

limitedliability
liability
have limited liability, but partial
some banks require officers partialresponsibility
responsibilityofofaa
corporate
corporateshareholder;
shareholder;he heororshe
she
to personally guarantee the isisresponsible only up to the
responsible only up to the
debts of the company. amount
amountofofhis
hisororher
herindividual
individual
investment
investment

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

C-Corporation
Disadvantages

expensive to set up

income more heavily taxed

subject to double taxation on income

pays taxes on profits

stockholders taxed on dividends

20
SECTION 7.2 Corporations

Nonprofit Corporation

A nonprofit corporation nonprofit

nonprofitcorporation
corporation
must fall within one of four
aalegal
legalentity
entitythat
thatmakes
makesmoney
money
categories:
for reasons other than
for reasons other than the the
religion owners
ownersprofit;
profit;ititcan
canmake
makeaa
charity profit,
profit,but
butthe
theprofit
profitmust
mustremain
remain
within the company
within the company
public benefit
mutual benefit

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.2 Corporations

Limited Liability Company

There are many benefits to limited

limitedliability
liabilitycompany
company(LLC)(LLC)
forming a limited liability aacompany
company (LLC). companywhose
whoseowners
ownersandand
managers have limited liability
managers have limited liability
and
andsome
sometaxtaxbenefits,
benefits,but
butwhich
which
avoids some restrictions
avoids some restrictions
associated
associatedwith
withSubchapter
SubchapterSS
corporations
corporations

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business

SECTION 7.2 Corporations

Making the Decision

Before deciding on a legal form, ask yourself key questions about:

your skills willingness to assume liability

access to capital level of control wanted
expenses length of time you expect to own
the business

Chapter 7 Types of Business Ownership

Glencoe Entrepreneurship: Building a Business