Legal Forms of Business Organization

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Legal Forms of Business Organization
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Sole Proprietorship

• Typical size Very small
• This is a single individual conducting economic
  activity as a business and not as an employee.
• The sole proprietor and a sole proprietorship are
  one in the same.
• All business debts are the responsibility of the
  owner.

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Sole Proprietorship

• The sole proprietor is responsible for all
  actions taken in the name of the business.
• This is the easiest legal form to start.
• It is the least regulated of all business forms.

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Sole Proprietorship

• The sole proprietorship can hire employees but
  the owner cannot be an employee.
• All profits are taxed as regular income to the
  proprietor the sole proprietorship pays no taxes
  itself as a business entity.
• Typical examples include small shop keepers,
  artists, crafts people, carpenters, consultants,
  and writers.

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Partnership

• Typical size From two individuals to a large
  firm with many partners
• This is two or more people conducting economic
  activity as a business and not as employees.
• All business debts are the personal
  responsibility of the partners.

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Partnership

• All partners are responsible for all actions
  taken in the name of the business by all other
  partners. (Their liability is limited to their
  percentage of ownership.)
• This is the second easiest legal form to start.
• There is slightly more regulation than for a sole
  proprietorship.

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Partnership

• The partnership can hire employees but the
  partners cannot be employees.
• All profits are taxed as income to the partners
  the partnership pays no taxes itself.

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Corporation

• Typical size Ranges from a few stockholders to
  huge organizations with thousands of stockholders
• This is two or more people conducting economic
  activity as a business and not as employees.
  (Most states require at least two shareholders.)
• Business debts are not the personal
  responsibility of the owners (limited liability).

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Corporation

• The corporation (and not an owner) is responsible
  for all actions taken in the name of the
  business.
• This is a more complex legal form to start and
  requires filing statements with the state within
  which the corporation is formed, along with other
  legal requirements.
• It is one of the two most regulated business
  forms. (The Limited Liability Company is the
  other.)

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Corporation

• In the eyes of the law, a corporation is treated
  like an individualthe corporation can own
  property, make money, and be sued just like a
  real person.
• The corporation can hire employees which may
  include the owners.
• All profits are taxed twice, once as corporation
  income, and again as investor income.

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Limited Liability Company

• Typical size Ranges from a single individual to
  a huge organization
• It involves one or more people conducting
  economic activity as a business and not as
  employees.
• All business debts are not the personal
  responsibility of the owners (limited liability).

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Limited Liability Company

• The LLC (and not an owner) is responsible for all
  actions taken in the name of the business
• This legal form is somewhat more complicated than
  a partnership and nearly as complex as a
  corporation.
• It is one of the two most regulated business
  forms (the corporation is the other).

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Limited Liability Company

• It is a legal person in the eyes of the law it
  can own property, make money, and be sued just
  like a real person (and just like a corporation).
• The LLC can hire employees, which may not include
  the owners.
• The LLC pays no taxes itself, just like a sole
  proprietorship or partnership taxes are paid by
  the owners.