Forms of Business Ownership

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Forms of Business Ownership

• Leslie Lum

Bellevue Community College
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Categories of Companies
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Sole Proprietorships

• Advantages
• Easy to set up
• Control
• Retain all profits
• Flexibility
• Privacy
• Pension benefits

• Disadvantages
• Typically small business
• Limited financial resources
• Lack of critical mass
• Unlimited liability
• Succession problems

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Types of Partnerships

• General
• Limited
• Master Limited

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Partnerships

• Advantages
• Easy to form
• Taxed at personal rates
• Pooling of talents
• Easier to get financing

• Disadvantages
• Unlimited liability
• Shared liability
• Interpersonal problems
• Competition for positions

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Types of Corporations

• C Corporation
• S Corporation
• Limited Liability Company

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Corporate Structure

• Shareholders - Individual, institutional
• Board of Directors
• Officers
• Corporate Charter
• Stockholders rights

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Corporations

• Advantages
• Limited liability
• Liquidity
• Access to more sources of financing
• Unlimited life

• Disadvantages
• Reporting requirements
• Vulnerability to take-overs
• High tax rate
• Double taxation to shareholder

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Corporations and Double Taxation
Profits before taxes 500,000
Sole Proprietor Gets all of profits Taxed at
individual rate
Partners Divides profits Taxed at individual rate
Corporation is taxed Divides profits Taxed at
individual rate

• 500,000
• 100,000 20 tax
• 400,000 total

• 500,000 divided by 5 partners 100,000 each
• 20,000 20 tax
• 80,000 each or
• 400,000 total

500,000 -175,000 35 Corporate Tax 325,000
Divided by 100 shareholders 3,250 - 487.50
15 Personal Dividend Tax 2,762.50 each
or 276,200 total
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New Business Called Biz.Com

• You have three options
• Sole proprietorship
• Partnership with one other person
• Corporation

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Biz.Com - Your share of Profits is 100,000

• Individual tax rate is 20 Corporate tax rate is
  35 Dividend tax is 15
• As a sole proprietor how much do you take home
  after paying the taxman?
• As a partner how much do you take home?
• As a corporation how much do you take home?

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Biz.Com - You have a great product idea but
nobody else in the company thinks it will work.

• As a sole proprietor what happens?
• As a partner what happens?
• As a corporation what happens?

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Biz.Com - Someone sues you for 1 million because
your product turned their hair green. The
company is worth 0.5 million.

• As a sole proprietor what happens?
• As a partner what happens?
• As a corporation what happens?

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Biz.Com - You want to expand your company by
acquiring another company. The other company
will cost 2 million.

• As a sole proprietor what happens?
• As a partner what happens?
• As a corporation what happens?

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Biz.Com - A competitor wants to take you over

• As a sole proprietor what happens?
• As a partner what happens?
• As a corporation what happens?

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Biz.Com - You want to retire to California.

• As a sole proprietor what happens?
• As a partner what happens?
• As a corporation what happens?