Electronic Flashcards
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Why might a person want to own their own
business?
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A chance to be in control
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A chance to make decisions
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A chance to invest and make $$ -- profit
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Read more….
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Thousands of people are business owners;
however,
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the amount of control they have, how
decisions are made, the sources of money for
the business, and control over profits –
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depends on the form of ownership.
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How many major forms of business
ownerships are there?
Three (3)
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What are those three (3) forms of business
ownership?
The (3) forms of business ownership are…
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Proprietorship; aka sole proprietorship
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Partnership
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Corporation
(click to define)
(click to define)
(click to define)
Return to Major Forms
A proprietorship is…
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A business owned and operated by just one
person
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7 Characteristics?
Return to Major Forms
A partnership is…
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A business owned and controlled by two or more
(> = 2) people who entered into an agreement
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4 Characteristics?
Return to Partnership
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What is that agreement called?
PARTNERSHIP AGREEMENT
Consists of?
Return to Partnership
What does a partnership agreement consist of?
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Details the rules of procedures that guide
ownership and operation.
Identifies the business name and
investment/contribution of each partner
Shows how profit/losses will be divided
Defines authority, duties, and responsibilities
Details how the partnership can be dissolved
(ended)
Return to Major Forms
A corporation is…
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A separate legal entity (body) formed by
documents filed with a state; treated as an
“individual” by governments
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7 Characteristics?
Return to Major Forms
Characteristics of a Proprietorship (7)
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Easiest to start and end
Few legal requirements
Capital needs are minimal
Sole control over all business activities
Owner receives all profits
Owner responsible for all business debts
Personal/business assets can be claimed to pay off
business debts
Return to Major Forms
Characteristics of a Partnership (4)
 Quite easy to start
 All owners share responsibilities for key business
decisions and functions
 Capital investments and profits are shared based
on agreement
 Each partner is liable for the debts of the business,
if it fails
Characteristics of a Corporation (7)
 Owned by one or more shareholders (persons who
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buy shares of stock)
Managed by a board of directors (BoD)
More difficult to form
Must meet more legal requirements
All owners do not have direct involvement in
decisions
Owners will not have access to profits unless BoD
approves dividends (profits shared)
Liability (risk) of stockholders is limited to only
amount invested
What are the advantages of choosing to
operate your business as a proprietorship?
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Freedom of working for yourself (NO BOSS)
Total control of the business
Easy startup; minimal capital needed
No business name needed; minimal gov’t
regulations
Business expenses can be used to reduce
taxable income
Resume Review
What is taxable income?
For example, if a proprietor earned $40,000 a year and
generate a profit of $5,000 from the business,
the government will expect a % of that $45,000 to be
paid in taxes; 25% of $45K = $11,250 income taxes, but
the business expenses = $2,000, then only $43,000 of
earned income would be taxable; taxes only $10,750.
$500 savings in taxes
What are the disadvantages of choosing to
operate your business as a proprietorship?
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The need to obtain required licenses and permits
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Limited capital and business skills
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Taxes will have to be paid on profits
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All risk is placed on the owner
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In the eyes of the law, the business and owner are the
same
What are the advantages of choosing to
operate your business as a partnership?
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Two or more people can contribute to the
investment needed to start the business
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Added expertise to the business
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Good for people who share an idea for a
business and work well together
What are the disadvantages of choosing to
operate your business as a partnership?
 No protection for personal assets in case of
debt
 Each partner is responsible for decisions
made by all other partners
 Each partner can lose much more than the
original amount invested
 If partner chooses to leave the partnership or
dies, the partnership normally is dissolved.
What are the advantages of choosing to
operate your business as a corporation?
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Liability of any owner is limited to amount
invested.
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Amount of the business debt doesn’t matter
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Can invest, make a profit, and NOT take part in
the day-to-day management and operation
What are the disadvantages of choosing to
operate your business as a corporation?
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Decision making is shared by managers, the
BoD, and shareholders
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More records are required and more laws that
regulate operation
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Investors pay taxes on individual earnings from
stocks; company must pay corporate taxes on
profit because it is treated as an “individual.”
What other specialized forms of business
ownership exists?
Specialized Partnerships and Corporations
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Limited liability partnership (Click to define)
Joint venture (Click to define)
S-corporation (Click to define)
Limited liability company (LLC) (Click to define)
Non-profit corporation (Click to define)
Cooperatives and Franchises
(Click to define)
Return to Special Forms
A limited liability partnership is …
a partnership that identifies some investors who
cannot lose more than the amount of their
investment, but they are not allowed to participate in
the day-to-day management of the business.
is difficult and costly to setup
Return to Special Forms
A joint venture is …
a unique business organized by two or more
other businesses to operate for a limited
time and for a specific project.
Return to Special Forms
An S-corporation is …
offers the limited liability of a corporation; all
income is pass through to the owners based on
their investment and is taxed on their individual
tax returns.
Return to Special Forms
An limited liability company (LLC) is …
a combination of a partnership and
corporation; provides liability protection for
owners
simpler requirements than corporation;
document like partnership agreement must
be developed
Return to Special Forms
A non-profit corporation is …
a group of people who join to do some activity
that benefits the public.
works in areas such as education, health care,
charity, or the arts
capital is generated by grants and donations
must be organized as a corporation
Return to Special Forms
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A cooperative is …
a company owned by members, serves their
needs, and is managed in their interest.
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A franchise is…
a written contract granting permission to
operate a business to sell g/s in a set way.
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Read more…
Return to Corporation
What is a Board of Directors?
The people who will make major policy and
financial decisions for the business
Cooperatives and Franchises
Cooperatives
 Consumers form co-ops to purchases g/s
cheaper as a group
Businesses form co-ops to market the g/s
needed by its members
Larger numbers = greater bargaining power
Read more…
Cooperatives and Franchises
Franchises
The company that owns the g/s and grants the
rights to another business is known as the franchiser
(i.e.,employer); examples – McDonald’s, Jiffy Lube,
Merry Maids, etc.
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 The company purchasing the rights to run the
business is the franchisee (i.e., employee).
 Franchisee pays a fee and % of profit to franchiser.
END of REVIEW
Return to Corporation
What are the legal requirements?
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Must file articles of incorporation with
the state in which it will operate
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Must create corporate bylaws
Return to Legal Reqs
What is an article of incorporation?
A written legal document that defines
ownership and operating procedures and
conditions for the business
Return to Corporation
What are corporate bylaws?
Details that are the operating procedures for
the corporation
THE END
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