Types of Business Ownership Flashcards
There are six basic types of business organizations:
a. Sole proprietorship
b. General partnership
c. Limited partnership
d. Corporations
e. S-Corporations
f. Limited Liability Corporation
A. Sole Proprietorship:
Advantages of Sole Proprietorship:
a. Easy to establish
b. Freedom from government stipulations
c. Minor investment to get started
d. Owner determines how profits are used
Why is a sole proprietorship dangerous:
Owner liable for all debts
Sole proprietorship liability includes:
Liability includes personal assets
When does sole proprietorship end?
Death upon the owner
Sole Proprietorship taxes:
Income tax is computed at normal individual rates on all
the earnings of the business.
General Proprietorship:
A general partnership is the unincorporated association of two or more parties who join together as co-owners in order to establish a business for profit.
General Proprietorship advantage:
Merges assets, credit, equipment, and talents.
What does a General Proprietorship do?
Increases the capacity for bonding and bidding
What do partners of General Proprietorship do?
All partners share in decision making and profits.
General Proprietorship taxes:
A general partnership pays no income tax.
Partners pay income taxes at the normal individual rate.
General Proprietorship liabilities?
Each partner is liable for the business debts of the other partners.
When does General Proprietorship end?
A general partnership ceases with the death of a partner.
General Proprietorship decision making:
Business decisions have to be agreed upon by all partners.
Limited Partnership:
A limited partnership allows an individual to invest in a general partnership but have no input to how the partnership is operated.
Limited Partnership liabilities:
Limited liability based on investment
Why would someone want to use a Limited Partnership which does not allow any input on how the partnership is operated?
Shares in the profits.
Limited Partnership Taxes
LLP pays no taxes
Partners pay income taxes at the normal individual rate.
Disadvantage of Limited Partnership
Requires complex legal documentation and Compliance with state and federal regulations.
Corporation:
A corporation is a business type where-by one or more
individuals unite to form one entity. Upon meeting state
corporation requirements in reference to filing, the corporation
is regarded as being separate from the individuals that created it.
Corporation liabilities:
Limited liability
Which type of business is not affected by the death of a stock holder?
Corporation
Corporation advantages:
Raising capital is not hindered by regulations.
Corporation taxes:
Corporation Pay taxes only on earnings. (Corporate Tax)
Shareholders pay taxes on dividends received. (double taxation)
S-Corporation:
A S-Corporation is a corporation which has met I.R.S. requirements to receive the benefits of being taxed as a partnership rather than a corporation.
S-Corporation: requirements include:
a.
b.
c.
a. Have no more than 100 shareholders
b. Must be U.S. citizens
c. There can only be one outstanding stock
S-corp Taxes:
S-Corporations pay no corporate taxes, however shareholders pay taxes on
dividends. (Income Tax)
Limited Liability Company:
Limited Liability Company has the limited liability of a corporation and the tax advantage of a partnership. The LLC has
less legal requirements and more tax and economic benefits.
LLC taxes:
The owner pays taxes on earnings as an individual, not as a corporation.
Joint Venture:
Several (Business Members) come together to form a new business entity larger and financially stronger than if they acted alone.
What does a joint venture do:
The joint venture combines talents & resources in order to carry out a single
defined project.
