7. Advantages of sole proprietorships
•Easy and inexpensive to create.
• Unless you need certification or local
permits, government intervention is
minimal
•Owner makes all business decisions & has
control over all aspects of the business.
-
8. •Owner receives all profits.
•Ability to act quickly in making
decisions – no checking with others
Advantages of sole proprietorships
-
9. •Tax advantages
• Business itself pays no taxes
• Taxes are paid as personal income of owner
which is usually lower than corporate taxes
• Many business expenses are deductible
•Easy to close/dissolve
• Pay employees and creditors
• Sell your equipment
• Notify customers if possible
Advantages of sole proprietorships
-
11. Disadvantages of sole proprietorships
•Owner has unlimited liability for all debts
actions of the business.
•Unlimited liability: The debts of the business
may be paid from the personal assets of the
owner.
•If you cannot pay business debt with business
income, bill collectors can take your personal
assets (home, car)
-
12. •Difficult to raise capital.
•Banks/lenders consider sole proprietorships
to be a high-risk investment
•Needs include paying employees, purchasing
equipment & inventory, & running the business
•Expansions can be delayed or halted causing
you to lose business to your competition
Disadvantages of sole proprietorships
-
13. •Sole proprietorship is limited by
his/her skills and abilities.
•Uncertain life
•Bankruptcy or incarceration will dissolve
your business
•The death of the owner automatically
dissolves the business.
Disadvantages of sole proprietorships
-
17. Advantages of partnerships
•Fairly easy & inexpensive to start
• May pay attorney if you develop a partnership agreement
•Combined resources
• Team with partners with different skills, experience,
contacts, & capital
• Sharing responsibilities makes business run more
efficiently & smoothly
• Increase the amount of capital to run the business.
Lenders may be more willing to lend or extend credit
-
19. Advantages of partnerships cont.
•Reduced expenses
• When two or more businesses combine expenses are no longer
being duplicated
• Ex. promotion, office space, supplies, utilities
•Business losses are shared by all partners.
•The partnership does not pay income tax on profits.
• Each partner pays income tax on her/his individual share
of the profit
-
21. Disadvantages of partnerships
•Unlimited liability
• Each owner in a general partnership has unlimited liability.
• Each partner can lose personal assets to pay business debt
• In a limited partnership, the liability is limited to the amount
invested in the business
•Limited Capital
• Although partners may bring more capital to the business than
sole proprietors, it is still limited to what each can contribute
• Some lenders may still be reluctant to lend large amounts
-
22. Disadvantages of partnerships
•Difficulty in ending
• Withdrawing can be complicated if there is no
written partnership agreement
• By law profits must be divided equally if no
agreement
-
23. Disadvantages of partnerships cont.
•Partnerships may lead to disagreements.
• May disagree on business goals, finances,
responsibilities
• Can affect the efficiency of the business, morale of
employees, & success or failure of the venture
-
24. Disadvantages of partnerships cont.
•Uncertain life/Transferability
• Unless specified in a detailed partnership agreement,
bankruptcy, death & the withdrawal or admittance of a
new partner dissolves the partnership
• Remaining partners may start a new partnership if
they have the money to buy the former partner’s
share
-
26. Corporation
A business that is chartered by a
state and legally operates apart
from its owners.
Owned by stockholders who
have purchased units or shares
of the company
-
27. Types of corporations
•C-corporation: The most common form of
corporation. It protects the entrepreneur
from being personally sued for the actions
and debts of the corporation.
•S-corporation: A corporation that is taxed
like a sole proprietorship or partnership.
-
28. Types of corporations
•Nonprofit corporation: Legal entities that
make money for reasons other than the
owner’s profit.
A form of business ownership that provides limited
liability and tax advantages.
Limited Liability Company (LLC):
-
30. Advantages of corporations
•Limited Liability
•Owners are liable only up to the amount of their
investments. Personal assets cannot be used to
pay business debt.
•Unlimited life
•May exist indefinitely
•The death or withdrawal of an owner/stockholder
does not affect the life span of the corporation
-
31. Advantages of corporations
•Financial Power
•Can raise money quickly by issuing
shares of stock.
•Because it is closely regulated by the
government, financial institutions are
more willing to lend larger amounts of
capital
-
32. Advantages of corporations cont.
•Easy-to-transfer ownership
•Ownership simply transferred by selling stock to
someone else
•New stock certificate is issued in the name of new
stockholder. No permission is required by others
•The business can hire experts to
professionally manage each aspect of the
business.
•Can result in a more efficiently run organization
-
34. Disadvantages of corporations
•Difficulty in forming & operating
•Legal assistance is needed to start a
corporation
• Lawyer fees can be very expensive
• Must request approval from the State &
register the Articles of Incorporation
• Decisions about value & class of stock &
shareholder voting rights
-
-
35. Disadvantages of corporations
•Dual taxation
•Corporation is taxed on
profits from the company
•Shareholders are taxed
on the dividends they
earn on their investments
-
36. Disadvantages of corporations
•Separate owners & managers
• Stockholders are not generally involved in
the day-to-day operation of the corporation
• Stockholders form a board of directors to
make decisions about the business &
managers carry out these decisions
• Separation of ownership & management
provides more opportunity for irregularities
or misunderstandings
-
38. Hybrid forms of Business Ownership
•Limited Liability Company (LLC)
•Limited Liability Partnership (LLP)
•Both combine various elements of sole
proprietorships, partnerships, &
corporations into one package
39. Advantages of Hybrid Businesses
• Less cost to start & operate
•Generally less expensive than corporations
•No dual taxation - requires less paperwork &
regulation
•LLPs are designed for business professionals
such as lawyers & doctors
• Partners might need to carry a required
amount of liability insurance
-
-
-
40. Advantages of Hybrid Businesses
•Limited Liability
•Personal assets cannot be used to
pay business debt
•Owners (members) lose only what
they have invested in the business if
it fails
-
41. Advantages of Hybrid Businesses cont.
•Taxation
•LLCs & LLPs pay taxes on personal income-tax
returns
•Since they are not considered separate entities
(like corporations) they are not subject to dual
taxation
•Combined resources
•Often have more owners & tend to have a wider
pool of financial resources, skills, talents, &
contacts
-
42. Advantages of Hybrid Businesses cont.
•Life span
•Hybrids are required to dissolve after a
specific time period
• Depending on the state registered in,
usually between 30 & 40 years
•Owners can decide if they want to
reorganize or let it dissolve
-
43. Advantages of Hybrid Businesses cont.
•Flexibility
•Number of members permitted in LLCs are unlimited
• Sub S corporations must have 100 or fewer
shareholders
•Most states require only one member to establish a
business as a hybrid
•Members are permitted to run the company or to allow
others to manage it
•Membership changes do not automatically dissolve the
company
-
44. Disadvantages of Hybrids
•Verification of each state’s
statutes can be costly
•Requirements & laws to establish & operate hybrids
vary from state to state
•Problematic for businesses that operate in more
than one state
•No universal guidelines from state to state
-
