7
Types of Business
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
popular form of business
ownership is the sole
proprietorship.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
sole proprietorship
a business that is owned and
operated by one person
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
owner must decide how
much liability protection
he or she needs.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
liability protection
insurance against the debts and
actions of 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
of a sole proprietorship is
financial.
In this form of business
ownership, the owner has
unlimited liability.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
unlimited liability
full responsibility for all debts and
actions of a business
SECTION
7.1
Sole Proprietorships
and Partnerships
Partnerships
A partnership draws on the
skills, knowledge, and
financial resources of more
than one person.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
partnership
an unincorporated business with
two or more owners who share
the decisions, assets, liabilities,
and profits
SECTION
7.1
Sole Proprietorships
and Partnerships
General versus Limited Partners
The law requires that all
partnerships have at least
one general partner.
A partnership may be set up
so that all of the partners
are general partners.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
general partner
a participant in a partnership who
has unlimited personal liability
and takes full responsibility for
managing the business
SECTION
7.1
Sole Proprietorships
and Partnerships
General versus Limited Partners
Some partnerships include
a limited partner.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
limited partner
a partner in a business whose
liability is limited to his or her
investment; a limited partner
cannot be actively involved in
managing the 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 partner’s 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
corporations:
•C-corporation
•Subchapter S corporation
•nonprofit corporation
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
corporation
a business that is registered by a
state and operates apart from its
owners; it issues shares of stock
and lives on after the owners
have sold their interest or passed
away
SECTION
7.2
Corporations
C-Corporation
A C-corporation is the
most common corporate
form.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
C-corporation
an entity that pays taxes on
earnings; its shareholders pay
taxes as well
SECTION
7.2
Corporations
C-Corporation
In smaller corporations, the
founders generally are the
major shareholders.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
shareholders
the owners of a corporation
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
have limited liability, but
some banks require officers
to personally guarantee the
debts of the company.
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
limited liability
partial responsibility of a
corporate shareholder; he or she
is responsible only up to the
amount of his or her individual
investment
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
must fall within one of four
categories:
•religion
•charity
•public benefit
•mutual benefit
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
nonprofit corporation
a legal entity that makes money
for reasons other than the
owner’s profit; it can make a
profit, but the profit must remain
within the company
SECTION
7.2
Corporations
Limited Liability Company
There are many benefits to
forming a limited liability
company (LLC).
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
limited liability company (LLC)
a company whose owners and
managers have limited liability
and some tax benefits, but which
avoids some restrictions
associated with Subchapter S
corporations
SECTION
7.2
Corporations
Making the Decision
Before deciding on a legal form, ask yourself key questions about:
your skills
access to capital
expenses
Chapter 7 Types of Business Ownership
Glencoe Entrepreneurship: Building a Business
willingness to assume liability
level of control wanted
length of time you expect to own
the business