Sole Proprietorship
Person who owns the business and is personally responsible for its debts, simplest form to start and own, business is not separate from its owner.
Who is a sole proprietor?
Relationship between two or more people who join to create a business.
What is a partnership?
This is defined by the US Supreme Court as "an artificial being, invisible, intangible, and existing only in contemplation of the law." It's a legal entity which means it can buy property, earn money, manufacture and distribute products, pay taxes, sue or be sued, and enter into contracts. Owners are not liable for business risks. Board of directors makes policy and financial decisions.
What is a corporation?
This is a legally binding agreement.
What is a contract?
These companies sell their stock on stock exchanges to any investor who wants to buy it. They must release all financial information related to the company.
What are public corporations?
This license is needed to officially register a business; it's necessary if you are conducting business in a name other than your own.
What is a DBA (Doing Business AS) license?
General partnership: All partners have unlimited liability
Limited partnership (LP): one Managing partner and at least one limited partner, limited partners have limited liability meaning can't lose more than original investment; must remain a silent partner (one who invests money but is not involved in daily operations or management)
What are two types of partnerships?
This type of corporation pays taxes on profits and provides personal liability protection for its owners. Must be this type of corporation to sell stock on stock exchanges. Anyone can form this type of corporation.
What is a C corporation?
This is a legal document describing the purpose, place of business, and other details of a corporation. It's may also be called articles of incorporation
What is a charter?
This includes corporate records, annual reporting, meetings/procedures required by law, articles of incorporation, creating bylaws, issuing stock to owners, forming a board of directors, and paying fees.
What are corporate formalities?
This is needed for income tax purposes, if hiring employees. It is obtained from the IRS.
What is an Employer Identification Number (EIN)?
Drawn up by a lawyer, this details how much each partner will invest, responsibilities of each partner, how the profits are to be shared, and an exit strategy, if a partner decides to leave the business.
What is a partnership agreement?
This type of corporation provides limited liability to its owners and is taxed like a partnership. Intended for small businesses with fewer than 100 stockholders. Individual owners pay taxes on their own earnings. This provides protection of limited liability and substantial tax savings.
What is a subchapter S corporation?
Shares of ownership in a company.
What is stock?
These resemble both a partnership and a corporation: limited liability company and limited liability partnership (LLP).
What are alternative forms of ownership?
As the owner of the company, you have complete control of the business, keep 100% of the profits, it's easy to establish once you have your business idea, and enjoy all profits, which are taxed at your personal tax rate.
What are advantages of a sole proprietorship?
This is when each partner brings individual strengths, they share the risks (with limited liability for the limited partner(s)), it's easy to setup, more financial resources for the business, and since partnerships aren't legal entities, they enjoy tax benefits (claim profits on their personal tax returns)
What are the advantages of a partnership?
Perpetual life, the company continues when the stock is sold since it's separate legal entity, money can be raised by selling stock to investors, name credibility for potential customers, limited liability for owners.
What are advantages of a corporation?
People who own stock in a company and own a portion of the company.
What are Stockholders?
This type of ownership limits personal liability of members, less paperwork, profits reported on personal tax returns, can choose any organizational structure members agree upon, expensive to form, subject to state and federal regulations, not permitted in all states. Disadvantage: has limited life, business ends on the retirement or death of one member.
What is limited liability company (LLC)?
Unlimited liability, assume 100% of the losses, sole responsibility, may need other professional expertise.
What are disadvantages of a sole proprietorship?
This causes personality conflicts, unlimited liability for the general partners, share profits and losses, obtaining loans more difficult, and bound by the agreement.
What are the disadvantages of a partnership?
Double taxation; pay taxes on corporations profits and stockholders pay taxes on their individual earnings, high cost of entry with registration and legal fees, and corporate formalities.
What are disadvantages of a corporation?
These companies do not sell their stock publically to investors on stock exchanges. Stock is held by one or more people. They are not required to release information about their sales or profits.
What are private corporations?
This type of ownership limits personal liability of partners, profits are reported on personal tax returns, structure similar to limited partnership, no managing partner, not permitted in all states. Owners are called partners.
What is a limited liability partnership (LLP)?