Selecting A Form of Business Ownership
Considerations Cost / Complexity Tax Liability Legal Liability Ownership / Management
Sole ProprietorshipDefinition: A business that is owned
and operated by one person.
Sole ProprietorshipAdvantages: Very easy and cheap to create Business pays no taxes only the
owner does (personal income tax) Owner receives all profits and
makes all decisions
Sole ProprietorshipDisadvantages: Owner has unlimited liability
Full responsibility for all debt and actions of the business.
Owner’s personal assets (cars, home, savings) are at risk!!!!!
Limited skills, expertise, and funding
Sole Proprietorship Examples Part-time businesses that are
not risky. E.G. Grandma’s sweater making
Any business can, in theory, be a sole proprietorship.
PartnershipDefinition: A unincorporated business
with two or more owners.
PartnershipAdvantages: Easy and cheap to create Business pays no taxes only the
owners do (personal income tax) More ideas/knowledge More start-up money
PartnershipDisadvantages: Owners have unlimited liability
Profits must be divided Disagreements can occur
Partnership Examples Simple, low risk businesses
that have two or more owners
Partnership AgreementDetails: Names, investments How profits and losses will be handled Authority and responsibilities How business will be dissolved
Corporation (Inc)Definition: A business registered by a
state and operates as it’s own entity that pays taxes on profits.
CorporationAdvantages: Limited Liability – owners are
responsible only up to the amount they invested.
Able to raise funds by selling stock
CorporationDisadvantages: Expensive to set-up ($500-$2,500)
Need Articles of Incorporation & bylaws
Extensive record keeping Double taxation
Corporate Profits and owners income are both taxed
Corporation Examples
Many of the big businesses you see.
Limited Liability Company (LLC)Definition: A business registered by a
state and operates as it’s own entity and receives tax benefits.
Limited Liability Company (LLC)
Advantages: Simpler to set-up than a
corporation Limited liability for owners Not subject to double taxation Owners only pay taxes once
Limited Liability Company (LLC)
Disadvantages: Cant sell stocks Around $500 to set-up
Limited Liability Company (LLC)Examples
Many small business with more than one owner that are not in need of outside investing.
Nonprofit Corporation
Definition Legal entity that makes
money for reasons other then the owners profit.
Profits must remain in company