Sole Proprietorship
What is a Sole Proprietorship?
A business that is owned and operated by one person.
What is a partnership?
What is a C-Corporation?
Business that pays taxes on earnings. (Shareholders pay taxes on earnings as well).
What is a Non- Profit Corporation?
Legal entity that makes money for reasons other than the owners profit.
What is a corporation?
Business that is registered by the state and operates apart from its owners.
What percentage of businesses are considered Sole Proprietorships in the U.S?
76% of business.
What is the difference between a general and limited partner?
A general partner is someone who has unlimited liability within the business and takes full responsibility of managing the business.
A limited partner is someone who is only liable for the amount of money invested within the company. They are also not involved in managing the business.
What is a Subchapter S Corporation?
Corporation that is taxed like a partnership. Profits are only taxed once at the shareholders personal tax rate.
Can Non-Profit Corporations make a profit?
They can, but the profit must remain within the business and distributed to shareholders and owners.
What four categories must a Non-Profit corporation fall into?
1. Charity
2. Public Benefit
3. Mutual Benefit
4. Religion
Give two advantages of operating a Sole Proprietorship.
1. Easy and inexpensive to create, and the owner has complete power.
2. Owner receives all the profits.
3. Business pays no taxes since it is not separated from the owner. (Low Tax)
Give an advantage of a partnership.
1. Business is inexpensive to create.
2. General partners have complete control.
3. Can get capital more easily and secure investments.
Give two advantages of a C-Corporation.
1. Limited Liability. only liable for what they invest.
2. Can deduct certain expenses from reportable income on taxes.
3. Offer great employee benefits (Pension Plans)
Give two examples of a Non-Profit Corporation.
1. Schools
2. Hospitals
3. American Red Cross
1. C-Corporation
2. Subchapter S Corporation
3. Non-Profit Corporations
Give a disadvantage of operating a Sole Proprietorship.
1. The owner receives all the profits of the business, but they are responsible for any losses and are liable for any debts (Unlimited Liability)
2. Hard to gain capital (Receive loans due to not having enough assets.
3. Death of the owner could completely dissolve the business.
Give two disadvantages of a partnership.
1. Hard to solve disagreements between partners without affecting the business.
2. Need some type of agreements to help business survive.
3. Problems with authority.
4. Partners are held for each others actions. (Such are breaking contracts and signing new contracts).
Give a disadvantage of a C-Corporation.
1. Expensive to set up.
2. Income is heavily taxed.
3. Subject to double taxation (Corporation pays taxes, as well as the stockholders).
What is a LLC?
A limited liability company is a company whose owners and enjoy limited liability and some tax benefits.
How do you set up a Sole Proprietorship?
1. Choose a name, if it is not the owners own name, the business must apply for a DBA (Doing Business As) ti name sure there is no business in the area with the same name.
2. If you hire employees you need to apply for EIN (Employee Identification Number) which comes from the internal revenue service revenue service.
3. Need Sales ID number if you are a retailer or vendor.
What questions should you ask yourself when deciding if a Sole Proprietorship is right for you?
1. How much protection do I need? (Insurance)
2. How much capital do I need or have? (Savings, Land, Machines)
3. How will the business impact my tax status? (Personal Taxes)
Describe ways partners can ensure their business will survive.
1. Share business responsibilities
2. Put things in writing (Agreement)
3. Be honest on how the business is doing.
Name an advantage and disadvantage of a Subchapter S Corporation.
Disadvantage: Can have no more than 75 stockholders who must be U.S citizens.
Owners may sometimes have to pay taxes out of personal earnings if business did not generate enough profit.
Give 2 benefits of forming an LLC.
1. Similar to the set up of a corporation
2. Flexible
3. Owners are not liable for company's debts.
4. Avoid double taxation.
What questions should you ask yourself before making a final decision about what kind of business to own?
1. Do you have the skills needed to run this venture?
2. Will you be able to cover expenses of the business
3. Do you want complete control over the business?
4. Do you expect to sell the business someday?