Business Legal Forms of Ownership

BUSINESS LEGAL FORMS OF OWNERSHIP
Sole Proprietorship | Partnership | Corporation & LLC's
In making a choice of how your business will be

structured, you will want to take into account the
following:
The size and scope of business you hoping to attain
The level of control you wish to have
The level of structure you are willing to deal with
The business's vulnerability to lawsuits
Tax implications of the different ownership

structures
Expected profit (or loss) of the business
Whether or not you need to re-invest earnings into

the business
Your need for access to cash out of the business for

yourself
The 4 basic legal forms of ownership are:

Sole Proprietorship
Partnership
Corporation
Limited Liability Company
CHARACTERISTICS OF EACH LEGAL FORM:
Sole Proprietorship
This is the easiest and least costly way of starting a
business. A sole proprietorship can be formed by finding
a location and opening the door for business. There are
likely to be fees to obtain business name registration, a
fictitious name certificate and other necessary licenses.
Attorney's fees for starting the business will be less than
the other business forms because less preparation of
documents is required and the owner has absolute
authority over all business decisions.
Partnership
There are several types of partnerships. The two most
common types are general and limited partnerships. A
general partnership can be formed simply by an oral
agreement between two or more persons, but a legal
partnership agreement drawn up by an attorney is highly
recommended. Legal fees for drawing up a partnership
agreement are higher than those for a sole
proprietorship, but may be lower than incorporating. A
partnership agreement could be helpful in solving any
disputes. However, partners are responsible for the other
partner's business actions, as well as their own.
A Partnership Agreement should include the following:
Type of business.
Amount of equity invested by each partner.
Division of profit or loss.
Partners compensation.
Distribution of assets on dissolution.
Duration of partnership.
Provisions for changes or dissolving the
partnership.
Dispute settlement clause.

Restrictions of authority and expenditures.
Settlement in case of death or incapacitation.
Corporation
A business may incorporate without an attorney, but
legal advice is highly recommended. The corporate
structure is usually the most complex and more costly to
organize than the other two business formations. Control
depends on stock ownership. Persons with the largest
stock ownership, not the total number of shareholders,
control the corporation. With control of stock shares or
51 percent of stock, a person or group is able to make
policy decisions. Control is exercised through regular
board of directors' meetings and annual stockholders'
meetings. Records must be kept to document decisions
made by the board of directors. Small, closely held
corporations can operate more informally, but recordkeeping cannot be eliminated entirely. Officers of a
corporation can be liable to stockholders for improper
actions. Liability is generally limited to stock ownership,
except where fraud is involved. You may want to
incorporate as a "C" or "S" corporation.
If you are unsure which legal form is best for you,
contact your local Small Business Administration for
assistance with deciding.
Sole Proprietorships
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The vast majority of small business start out as sole proprietorships. These firms are owned
by one person, usually the individual who has day-to-day responsibility for running the
business. Sole proprietors own all the assets of the business and the profits generated by it.
They also assume complete responsibility for any of its liabilities or debts. In the eyes of the
law and the public, you are one in the same with the business.
Advantages of a Sole Proprietorship
Easiest and least expensive form of ownership to organize.
Sole proprietors are in complete control, and within the parameters of the law, may
make decisions as they see fit.
Sole proprietors receive all income generated by the business to keep or reinvest.
Profits from the business flow-through directly to the owner's personal tax return.
The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship
Sole proprietors have unlimited liability and are legally responsible for all debts
against the business. Their business and personal assets are at risk.
May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.
May have a hard time attracting high-caliber employees, or those that are motivated
by the opportunity to own a part of the business.
Some employee benefits such as owner's medical insurance premiums are not
directly deductible from business income (only partially deductible as an adjustment to
income).
Federal Tax Forms That a Sole Proprietorship May Need to File
Form 1040: Individual Income Tax Return
Schedule C: Profit or Loss from Business (or Schedule C-EZ)
Schedule SE: Self-Employment Tax
Form 1040-ES: Estimated Tax for Individuals
Form 4562: Depreciation and Amortization
Form 8829: Expenses for Business Use of your Home
Employment Tax Forms
Sole Proprietorship
+ Easy to Organize
- Owner Has Unlimited Liability
+ Owner Has Complete Control
- Benefits Are Not Tax Deductions
+ Owner Receives All Income
How to Form a Sole Proprietorship

The Legal Form of a Business
Legal Resources for Small Businesses
Books on Business Law
Related Articles
IRS Publication 583, Sole ProprietorshipsHow to Form a Sole ProprietorshipDefinition of Sole
Proprietor
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Partnerships
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In a Partnership, two or more people share ownership of a single business. Like

proprietorships, the law does not distinguish between the business and its owners. The
Partners should have a legal agreement that sets forth how decisions will be made, profits
will be shared, disputes will be resolved, how future partners will be admitted to the
partnership, how partners can be bought out, or what steps will be taken to dissolve the
partnership when needed;. Yes, its hard to think about a "break-up" when the business is
just getting started, but many partnerships split up at crisis times and unless there is a
defined process, there will be even greater problems. They also must decide up front how
much time and capital each will contribute, etc.
Advantages of a Partnership
Partnerships are relatively easy to establish; however time should be invested in

developing the partnership agreement.
With more than one owner, the ability to raise funds may be increased.
The profits from the business flow directly through to the partners' personal tax
returns.
Prospective employees may be attracted to the business if given the incentive to

become a partner.
The business usually will benefit from partners who have complementary skills.
Disadvantages of a Partnership
Partners are jointly and individually liable for the actions of the other partners.
Profits must be shared with others.
Since decisions are shared, disagreements can occur.
Some employee benefits are not deductible from business income on tax returns.
The partnership may have a limited life; it may end upon the withdrawal or death of
a partner.
Types of Partnerships
General Partnership
Partners divide responsibility for management and liability, as well as the shares of
profit or loss according to their internal agreement. Equal shares are assumed unless
there is a written agreement that states differently.
Limited Partnership and Partnership with limited liability
"Limited" means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decisions, which
generally encourages investors for short term projects, or for investing in capital
assets. This form of ownership is not often used for operating retail or service
businesses. Forming a limited partnership is more complex and formal than that of a
general partnership.
Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single
project. If the partners in a joint venture repeat the activity, they will be recognized
as an ongoing partnership and will have to file as such, and distribute accumulated
partnership assets upon dissolution of the entity.
Federal Tax Forms That Partnerships May Need to File
Form 1065: Partnership Return of Income
Form 1065 K-1: Partner's Share of Income, Credit, Deductions
Form 4562: Depreciation
Schedule E: Supplemental Income and Loss
Partnership
+ Easy to Organize, But Needs Agreement - Partners Have Unlimited Liability
+ Partners Receive All Income
- Partners May Disagree
- Life of Business May Be Limited
How to Form a Partnership

Related Articles
IRS Publication 583, Partnerships Bankruptcy Tax Guide, Partnerships and Corporations Bankruptcy
Tax Guide, Partnerships
Read more: http://www.smallbusinessnotes.com/managing-yourbusiness/partnerships.html#ixzz4EDARNNhG
Corporations
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A corporation, chartered by the state in which it is headquartered, is considered by law to be

a unique entity, separate and apart from those who own it. A corporation can be taxed; it
can be sued; it can enter into contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to oversee the major policies and
decisions. The corporation has a life of its own and does not dissolve when ownership
changes.
Advantages of a Corporation
Shareholders have limited liability for the corporation's debts or judgments against
the corporations.
Generally, shareholders can only be held accountable for their investment in stock of
the company. (Note however, that officers can be held personally liable for their actions,
such as the failure to withhold and pay employment taxes.)
Corporations can raise additional funds through the sale of stock.
A corporation may deduct the cost of benefits it provides to officers and employees.
Can elect S corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.
Disadvantages of a Corporation
The process of incorporation requires more time and money than other forms of
organization.
Corporations are monitored by federal, state and some local agencies, and as a result
may have more paperwork to comply with regulations.
Incorporating may result in higher overall taxes. Dividends paid to shareholders are
not deductible form business income, thus this income can be taxed twice.
Federal Tax Forms That Regular or "C" Corporations May Need to File
Form 1120 or 1120-A: Corporation Income Tax Return
Form 1120-W Estimated Tax for Corporation
Form 8109-B Deposit Coupon
Form 4625 Depreciation
Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.
Corporation
+ Shareholders Have Limited Liability
- Incorporating Takes Time and Money
+ Can Raise Funds Through Sale of Stock - May Result in Higher Taxes Overall
+ Life of Business Is Unlimited
Subchapter S Corporations
A tax election only; this election enables the shareholder to treat the earnings and profits as
distributions, and have them pass thru directly to their personal tax return. The catch here
is that the shareholder, if working for the company, and if there is a profit, must pay herself
wages, and it must meet standards of "reasonable compensation". This can vary by
geographical region as well as occupation, but the basic rule is to pay yourself what you
would have to pay someone to do your job, as long as there is enough profit. If you do not do
this, the IRS can reclassify all of the earnings and profit as wages, and you will be liable for
all of the payroll taxes on the total amount.
Federal Tax Forms That Subchapter S Corporations May Need to File
Form 1120S: Income Tax Return for S Corporation
1120S K-1: Shareholder's Share of Income, Credit, Deductions
Form 4625 Depreciation
Schedule E: Supplemental Income and Loss
Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.
How to Form a Corporation

A sole
proprietorship is owned and run by one
individual who receives all profits and has
unlimited responsibility for all losses and
debts.
Read more: http://www.smallbusinessnotes.com/managing-your-
LEARNING OBJECTIVE[ EDIT ]
Define a sole proprietorship
KEY POINTS[ EDIT ]
In a sole proprietorship, there is no legal distinction between the

individual and the business. Thus, every asset is owned by the proprietor, and they
have unlimited liability.
o
Examples include writers and consultants, local restaurants and shops,
and home-based businesses.
o
A sole proprietor may use a trade name or business name other than his or
her legal name.
TERM[ EDIT ]
Sole Proprietorship
a business that is wholly owned by a single person, who has unlimited liability
EXAMPLE[ EDIT ]
An example of a sole proprietorship is an individual who runs a local food

truck and would be listed as such with the city.
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FULL TEXT[ EDIT ]
A sole proprietorship, also known as the sole trader or simply a

proprietorship, is a type of business entity that is owned and run by one
individual and in which there is no legal distinction between the owner and
the business. Some formal definitions of a sole proprietorship are "a business
owned by one person who is entitled to all of itsprofits" (Glos & Baker) and "a
business owned and controlled by one man even though he may have many
other persons working for him" (Reed & Conover).
The individual entrepreneur owns the business and is fully responsible for
all its debtsand legal liabilities. The owner receives all profits (subject to
taxation specific to the business) and has unlimited responsibility for
all losses and debts. Every asset of the business is owned by the proprietor,
and all debts of the business are the proprietor's. This means that the owner
has no less liability than if they were acting as an individual instead of as a
business. It is a "sole" proprietorship in contrast with partnerships. More

than 75% of all United States businesses are sole proprietorships. Examples
include writers and consultants, local restaurants and shops, and home-based
businesses.
Mom and pop store

This is a small proprietor with a small shop.
A sole proprietor may use a trade name or business name other than his or her
legal name. In many jurisdictions, there are rules to enable the true owner of
a business name to be ascertained. In the United States, there is generally a
requirement to file a doing business as statement with the local authorities. In

the United Kingdom, the proprietor's name must be displayed on business
stationery, in business emails, and at business premises, and there are other
requirements.
Source: Boundless. A Brief Definition of Sole Proprietorships. Boundless Business. Boundless, 26 May.
2016. Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/sole-proprietorships-48/a-brief-definition-of-sole-proprietorships240-4521/business/corporations.html#ixzz4EDAjK8NL
The advantages of a sole proprietorship

versus other forms of organizations is the
relative ease of set-up and the lower start-up
costs.
Discuss the advantages of running a sole proprietorship
KEY POINTS[ EDIT ]
Filing taxes as a sole proprietorship is relatively easier than that of

a corporation.
o
Sole proprietorships typically require less capital to set up and have easier
payroll requirements.
o
Sole proprietorships are not as heavily regulated as other forms of
organizations.
o
TERM[ EDIT ]
corporate
An incorporated entity is a separate legal entity that has been incorporated through a
legislative or registration process established through legislation.
EXAMPLE[ EDIT ]
A man starting his own consulting firm as a sole proprietor would require
very little capital to set up a home office to operate until sufficient funds are earned to
open a larger office.
FULL TEXT[ EDIT ]
Advantages of Sole Proprietorship

The sole proprietor form of business ownership is the most common form in
the United States and also the simplest. In this form of business ownership, an
individual proprietor owns the business, manages the business, and is
responsible for all of the business' transactions and financial liabilities. This
means that any debts incurred must be paid by the owner. This form of
business has several advantages .
A Writer's Office
A write enjoying the advantages of being a sole proprietor.
Quicker Tax Preparation

As a sole proprietor, filing your taxes is generally easier than a corporation.
Simply file an individual income tax return (IRS Form 1040), including your
business losses andprofits. Your individual and business income are
considered the same and self-employed tax implications will apply.
Lower Start-up Costs
Limited capital is a reality for many start-ups and small businesses. The costs
of setting up and operating a corporation involves higher set-up fees and
special forms. It's also not uncommon for a lawyer to be involved in forming a
corporation.
Ease of Money Handling

Handling money for the business is easier than other legal business structures.
No payroll set-up is required to pay yourself. To make it even easier, set up a
separate bank account to keep your business funds separate and avoid comingling personal and business activities.
Government Regulation
Sole proprietorships also have the least government rules and regulations
affecting it. They do need to comply with licensing requirements within the
states in which they do business and they do need to pay attention to local
regulations. However, the paperwork required is much less than large
corporations. Thus, they can operate quite easily. Sole proprietorships also do
not pay corporate taxes.
Sale and Inheritance

The sole proprietor can own the business for as long as he or she decides, and
can cash in and sell the business when they decide to get out. The sole
proprietor can even pass the business down to their heir, a common practice.
Assign Concept Reading
Source: Boundless. Advantages of Sole Proprietorships. Boundless Business. Boundless, 26 May. 2016.
Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/sole-proprietorships-48/advantages-of-sole-proprietorships-2411727/
Types of Partnerships
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EDIT FEEDBACK VERSION HISTORY USAGE

View Quiz
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A partnership, of which various forms exist, is

an arrangement where parties agree to
cooperate to advance their mutual interests.
LEARNING OBJECTIVE[ EDIT ][ EDIT ]
Differentiate between general partnerships, limited partnerships, and limited

liability partnerships
KEY POINTS[ EDIT ][ EDIT ]
The three typical classifications of for-profit partnerships are general

partnerships, limited partnerships, andlimited liability partnerships.
o
A general partnership exists when partners divide responsibility
for management and liability as well as the shares of profit or loss according to
their internal agreement.
o
A limited partnership is a form of partnership similar to a general
partnership, except that in addition to one or more general partners (GPs), there are
o
one or more limited partners (LPs). General Partners carry more liability, and in cases
of financial loss, the GPs will be liable.
o
A limited liability partnership (LLP) is a partnership in which some or all

partners (depending on the jurisdiction) have limited liability. In an LLP, one partner
is not responsible or liable for another partner's misconduct or negligence.
There are many different forms of corporations. Many corporations are

established for business purposes but public bodies, charities and clubs are often
corporations as well.
TERMS[ EDIT ][ EDIT ]
partnership
A business owned by two or more people.
loss
the negative difference between revenue and expense
EXAMPLE[ EDIT ][ EDIT ]
An example of a partnership is a joint venture. Sony

Mobile Communication is mobile phone manufacturing company that was founded
in 2001 as a joint venture between Sony and the telecommunications company
Ericsson.
FULL TEXT[ EDIT ][ EDIT ]
A partnership is a business owned by two or more people. In most forms of

partnerships, each partner has unlimited liability for the debts incurred by
the business. The three typical classifications of for-profit partnerships are
general partnerships, limited partnerships, and limited liability partnerships.
1.
General Partnership: Partners divide responsibility for management and

liability as well as the shares of profit or loss according to their internal
agreement. Equal shares are assumed unless there is a written agreement that
states differently.
2.
Limited Partnership: A limited partnership is a form of partnership

similar to a general partnership except that, in addition to one or more general
partners (GPs), there are one or more limited partners (LPs). It is a
partnership in which only one partner is required to be a general partner. LPs
have limited liability, meaning they are only liable for debts incurred by the
firm to the extent of their registeredinvestment and have no management
authority. The GPs pay the LPs a return on their investment (similar to a
dividend), the nature and extent of which is usually defined in
the partnership agreement. General Partners thus carry more liability, and
in cases of financial loss, the GPs will be liable.
3.
Limited Liability Partnership:A limited liability partnership (LLP) is a

partnership in which some or all partners (depending on the jurisdiction) have
limited liability. In an LLP, one partner is not responsible or liable for another
partner's misconduct or negligence. This is an important difference from that
of an unlimited partnership.
Source: Boundless. Disadvantages of Sole Proprietorships. Boundless Business. Boundless, 26 May.

2016. Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/sole-proprietorships-48/disadvantages-of-sole-proprietorships242-4550/
Source: Boundless. Disadvantages of Sole Proprietorships. Boundless Business. Boundless, 26 May.

2016. Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/sole-proprietorships-48/disadvantages-of-sole-proprietorships242-4550/
Source: Boundless. Types of Partnerships. Boundless Business. Boundless, 26 May. 2016. Retrieved 12
Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-business-textbook/types-ofbusiness-ownership-6/partnerships-49/types-of-partnerships-243-3376/
Partnership Agreements
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View Quiz
Partnerships are similar to sole proprietorships

except that two or more people own the
business and operate with a pre-arranged
agreement.
List the components that typically comprise partnership agreements
KEY POINTS[ EDIT ]
Partnerships are easy to establish, however, it is important to outline how

the business will be financed, who will do what work, what happens when a partner
dies, and what will happen when a partner or both partners want to dissolve the
partnership.
Like sole proprietorships, partners in a partnership

have unlimited liability.
o
Partnership agreements provide details on how the business will be run
and what is expected of each partner. They can minimize conflict later on in the
future.
o
TERM[ EDIT ]
Partnership Agreement
Legally binding contracts between two or more partners to place their capital, labor,
and skills with the understanding that there will be a sharing of the profits and losses
among partners.
EXAMPLE[ EDIT ]
Suppose you and a partner open a textile business, investing $1 million

each. One day, a fire breaks out in the factory and burns it the to ground.
Unbeknownst to you, your partner cancelled the insurance policy the day before, due
to (in his opinion) the high costs. Now, both you and your partners are liable for the
damages caused by the fire, and are uninsured. This could have been avoided had a
strongly worded partnership agreement set out the expectations from each partner
and their rights and responsibilities.
FULL TEXT[ EDIT ]
In a partnership, two or more people share ownership of a single business.

Like proprietorships, the law does not distinguish between the business and
its owners. The partners should have a legal agreement that sets forth how
decisions will be made, profits will be shared, disputes will be resolved, how
future partners will be admitted to the partnership, how partners can be
bought out, and what steps will be taken to dissolve the partnership when
needed. They also must decide up front how much time and capital each will
contribute to the business. By setting such expectations, partners can avoid

future problems.
About 10% of U.S. businesses are partnerships and though the vast majority
are small, some are quite large. For example, the big four
public accounting firms are all partnerships. Setting up a partnership is more
complex than setting up a sole proprietorship, but it is still relatively easy and
inexpensive compared to limited liability companies. The cost varies
according to size and complexity. It's possible to form a simple partnership
without the help of a lawyer or an accountant, though it is usually a good idea
to get professional advice. Professionals can help you identify and resolve
issues that may later create disputes among partners.
The Partnership Agreement

The impact of disputes can be lessened if the partners have executed a wellplanned partnership agreement that specifies everyone's rights and
responsibilities. The agreement might provide the following details:
Amount of cash and other contributions to be made by each partner
Division of partnership income (or loss)
Partner responsibilitieswho does what
Conditions under which a partner can sell an interest in the company
Conditions for dissolving the partnership
Conditions for settling disputes
General Partnership and Unlimited Liability

As in sole proprietorships, partnerships have unlimited liability.
Source: Boundless. Partnership Agreements. Boundless Business. Boundless, 26 May. 2016. Retrieved
12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-business-textbook/types-ofbusiness-ownership-6/partnerships-49/partnership-agreements-244-2098/
Advantages and
Disadvantages of Partnerships
READ

View Quiz
Partnerships are easy to establish and carry

many advantages, however there are risks
due to the concentrated ownership structure.
Discuss the characteristics and advantages of partnerships
KEY POINTS[ EDIT ]
Partnerships are relatively easy to establish.

With more than one owner, the ability to raise funds may be increased.
o
o
The profits from the business flow directly through to the partners'
personal tax returns.
o
The most obvious advantages to a partnership are the ease in which they
may be established, the combination of a wider pool of skills and knowledge, and the
increased ability to raise more funds with more partners.
o
partner.
The business usually will benefit from partners who have complementary
skills.
TERM[ EDIT ]
tortious
Of, pertaining to, or characteristic of torts.
FULL TEXT[ EDIT ]
A partnership is formed between two or more professionals where the

partners work together to achieve and share profits and losses.
Partnerships have certain default characteristics relating to both the
relationship between the individual partners and the relationship between the
partnership and the outside world. The former can generally be overridden by
agreement between the partners, whereas the latter generally cannot be done.
The assets of the business are owned on behalf of the other partners, and
they are each personally liable, jointly and severally, for business debts, taxes
or tortiousliability . For example, if a partnership defaults on a payment to
a creditor, the partners' personal assets are subject to attachment and
liquidation to pay the creditor.
General Partnership and Unlimited Liability

As in sole proprietorships, partnerships have unlimited liability. There are different kinds of
partnerships, each with its own benefits and shortcomings.
By default, profits are shared equally among the partners. However,

a partnership agreement will almost invariably expressly provide for the
manner in which profits and losses are to be shared. Each general partner is
deemed the agent of the partnership. Therefore, if that partner is apparently
carrying on partnership business, all general partners can be held liable for his
dealings with third persons. By default, a partnership will terminate upon the
death, disability, or even withdrawal of any one partner. However, most
partnership agreements provide for these types of events, with the share of the
departed partner usually being purchased by the remaining partners. By
default, each general partner has an equal right to participate in
the managementand control of the business. Disagreements in the ordinary
course of partnership business are decided by a majority of the partners, and
disagreements of extraordinary matters and amendments to the partnership
agreement require the consent of all partners. However, in a partnership of
any size, the partnership agreement will provide for certain electees
to manage the partnership along the lines of a company board. Unless
otherwise provided in the partnership agreement, no one can become a
member of the partnership without the consent of all partners, though a
partner may assign his share of the profits and losses and right to
receive distributions. A partner's judgment creditor may obtain an order
charging the partner's "transferable interest" to satisfy a judgment.
Advantages of Partnerships
Partnerships are relatively easy to establish; however time should be

invested indeveloping the partnership agreement
With more than one owner, the ability to raise funds may be increased
The profits from the business flow directly through to the partners'
personal tax returns
Prospective employees may be attracted to the business if given

the incentive to become a partner
Usually the business will benefit from partners who have

complementary skills
Source: Boundless. Advantages and Disadvantages of Partnerships. Boundless Business. Boundless,

26 May. 2016. Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundlessbusiness-textbook/types-of-business-ownership-6/partnerships-49/advantages-and-disadvantages-ofpartnerships-245-3518/
Types of Corporations
READ

View Quiz
Four main types of corporations are

designated as C, S, limited liability
companies, and nonprofit organizations.
Distinguish between a C corporation, S corporation, LLC and non-profit
KEY POINTS[ EDIT ]
C corporation refers to any corporation that, under United States federal

income tax law, is taxed separately from its owners.
o
S corporations are corporations that elect to
pass corporate income, losses, deductions, and credit through to
their shareholders for federal tax purposes.
o
An LLC is a flexible form of enterprise that blends elements
of partnership and corporate structures.
o
A nonprofit organization is an organization that uses surplus revenues to
achieve its goals rather than distributing them as profit or dividends.
o
TERMS[ EDIT ]
corporation
A group of individuals, created by law or under authority of law, having a continuous
existence independent of the existences of its members, and powers and liabilities
distinct from those of its members.
shareholder
One who owns shares of stock.
FULL TEXT[ EDIT ]
Four main types of corporations exist in the United States:

1.
C corporations
2.
S corporations
3.
Limited Liability Companies (LLCs)
4.
Nonprofit Organizations
C Corporations
C corporation refers to any corporation that, under United States federal
income tax law, is taxed separately from its owners . A C corporation is
distinguished from an S corporation, which generally is not taxed separately.
Most major companies (and many smaller companies) are treated as C
corporations for U.S. federal income tax purposes. A C corporation has no
limit on the number of shareholders, foreign or domestic.
Any distribution from the earnings and profits of a C corporation is treated as
a dividend for U.S. income tax purposes. Exceptions apply to treat certain
distributions as made in exchange for stock rather than as dividends. Such
exceptions include distributions in complete termination of a
shareholder's interest and distributions in liquidation of the corporation.
Coca-Cola Company
Coca-Cola is a famous C corporation.
S Corporations
S corporations are merely corporations that elect to pass corporate income,
losses, deductions, and credit through to their shareholders for federal tax
purposes. Like a C corporation, an S corporation is generally a corporation
under the law of the state in which the entity is organized. For federal income
tax purposes, however, taxation of S corporations resembles that of
partnerships. Thus, income is taxed at the shareholder level and not at the
corporate level. Payments to S shareholders by the corporation are distributed
tax-free to the extent that the distributed earnings were not previously taxed.
Also, certain corporate penalty taxes (e.g., accumulated earnings tax, personal
holding company tax) and the alternative minimum tax do not apply to an S
corporation. In order to make an election to be treated as an S corporation, the
following requirements must be met:
1.
Must be an eligible entity (a domestic corporation, or a limited

liability company which has elected to be taxed as a corporation).
2.
Must have only one class of stock.
3.
Must not have more than 100 shareholders.
Limited Liability Company (LLC)
An LLC is a flexible form of enterprise that blends elements of partnership and

corporate structures. It is a legal form of company that provides limited
liability to its owners in the vast majority of United States jurisdictions. The
primary characteristic an LLC shares with a corporation is limited liability,
and the primary characteristic it shares with a partnership is the availability of
pass-through income taxation. It is often more flexible than a corporation, and
it is well-suited for companies with a single owner.
Nonprofit Organization
A nonprofit organization is an organization that uses surplus revenues to
achieve its goals rather than distributing them as profit or dividends.
While not-for-profitorganizations are permitted to generate surplus revenues,
they must be retained by the organization for its self-preservation, expansion,
or plans.

Source: Boundless. Types of Corporations. Boundless Business. Boundless, 26 May. 2016. Retrieved 12
Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-business-textbook/types-ofbusiness-ownership-6/corporations-50/types-of-corporations-247-5936/
Structure of Corporations
READ

View Quiz
Corporate structure consists of various

departments and divisions that contribute to
the company's overall mission and goals.
Break down a corporation in to its structural parts
KEY POINTS[ EDIT ]
Segments of corporate structure may consist of

the marketing department, finance department, accountingdepartment,
human resource department, IT department, and the operational aspect of the
particular company.
o
A division of a business is a distinct part of the firm, however the company
is legally responsible for all of the obligations and debts of each division.
o
In a large organization, various parts of the business may be run by
different subsidiaries, and a business division may include one or many subsidiaries.
o
TERMS[ EDIT ]
subsidiary
A company owned by the parent company or holding company
IT
Information Technology: the use of computers and telecommunications equipment to

store, retrieve, transmit, and manipulate data.
FULL TEXT[ EDIT ]
Corporate structure consists of various departments that contribute to the

company's overall mission and goals. The Marketingdepartment is
considered by some business professionals as the most important entity in the
corporate structure. Without this department, sales or new customers cannot
be realized. The Financedepartment is also vitally important, as it is
responsible for acquiring capital used in running an organization. Other
segments of corporate structure may consist of
the Accounting department, HumanResources department,IT department,
and the Operational aspect of the particular company. These main six
corporate departments represent the major managing resources within a
publicly traded company; though there are often smaller departments either
within the major segments or in autonomous form.
Another way a corporate structure can be defined is by business divisions. A
division of a business is a distinct part of the firm, however the company is
legally responsible for all of the obligations and debts of each division. In a
large organization, various parts of the business may be run by different
subsidiaries, and a business division may include one or many subsidiaries.
Each subsidiary is a separate legal entity owned by the primary business or by
another subsidiary in the hierarchy. Often a division operates under a

separate name and is the equivalent of
a corporation or limitedliability company that obtains a fictitious name or a
"doing business as" certificate.
Hewlett Packard (HP) is a good example of a corporate structure including
multiple divisions. The divisions of HP -- e.g., the Printing & Multifunction
division, the Handheld Devices division, the Servers division (mini and
mainframe computers), et cetera -- all use the HP brand name. However,
Compaq (a part of HP since 2002) operates as a subsidiary, using the Compaq
brand name.
Corporate Structure
Hewlett Packard is an example of a corporation with multiple divisions and subsidiaries.
Another example is Google. Google Video is a division of Google, and is part of

the same corporate entity. However, the YouTube video service is a
subsidiary of Google because it remains operated as YouTube, LLC -- a
separate business entity even though it is owned by Google.

Source: Boundless. Ownership of Corporations. Boundless Business. Boundless, 26 May. 2016.
Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/corporations-50/ownership-of-corporations-249-1790/
Source: Boundless. Structure of Corporations. Boundless Business. Boundless, 26 May. 2016.
Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/corporations-50/structure-of-corporations-250-4742/
SECTION 4
Special Forms of Ownership

S-Corporations (S-Corps)
S corporations elect to pass corporate income, losses, deductions, and credit through to
their shareholders for federal tax purposes.
Limited Liability Companies (LLCs)
An LLC is a hybrid business entity which has characteristics of both a corporation and a
partnership, or sole proprietorship in some cases.
Publicly Held Corporations
Government-owned companies are either partially or fully owned by a government and have
both a distinct legal form and commercial presence.
Nonprofit Organizations (NPOs)
A nonprofit organization is an organization that uses surplus revenues to achieve goals

rather than to distribute them as profit or dividends.
SECTION 5
Franchising
Types of Franchises
There are three major types of franchises - business format, product, and manufacturing and each operates in a different way.
Advantages of Franchises
A franchise agreement can have many benefits for both the franchisor and the franchisee.
Disadvantages of Franchises
A franchise agreement can also have disadvantages for both the franchisor and the
franchisee.
Working from Home or Online
Home franchise operations have made franchising more accessible and affordable than ever,
but still require knowledge and expertise.
Technology in Franchises
Advances in technology benefits franchisors, franchisees, and the end customers.
Trends in Franchises: Growth
Franchising grew greatly in 2001 to 2005, before stagnating and following the growth trend
of the rest of the economy in the years that followed.
Trends in Franchises: International Adoptions
Franchising agreements are a popular way of entering international markets, and have
advantages and disadvantages.
Franchise Agreements
A Franchise Agreement is a legal, binding contract between a franchisor and franchisee,
enforced in the United States at the State level.
SECTION 6
Cooperatives and Joint Ventures

Cooperatives
A cooperative, an autonomous association of people who cooperate, is owned & managed by
those using its services and/or who work there.
Joint Ventures
A joint venture is when two or more parties are both invested in an original concept/project
in terms of money, time, and effort.
Syndicates
A syndicate is a self-organizing group of individuals or entities formed to transact specific
business or to promote a common interest.
SECTION 7
Corporate Growth
Organic Growth
Organic growth is the process of businesses expansion due to increasing the customer base,
output per customer, and/or through new sales.
Mergers and Acquisitions (M&As)
M&A refers to the aspect of corporate strategy, corporate finance, and management dealing
with the buying and selling of companies.
M&A Trends
Mergers and acquisitions occur due to globalization, liberalization, technological
developments, and the competitive business environment.
YOU ARE IN THIS BOOK
Boundless Business
Ownership of Corporations
READ

View Quiz
A corporation is typically owned and

controlled by its shareholders.
Outline the structure of the ownership in corporations
KEY POINTS[ EDIT ]
In a joint-stock company the members are known as shareholders and

their share in the ownership, control, and profits of the corporation is determined
by their portion of shares.
o
In some corporations, the legal document establishing the corporation or
containing its rules determines the corporation's membership.
o
The day-to-day activities of a corporation are typically controlled by

individuals appointed by the members.
TERMS[ EDIT ]
shareholder
One who owns shares of stock.
committee
a group of persons convened for the accomplishment of some specific purpose,

typically with formal protocols
EXAMPLE[ EDIT ]
A person can decide to become an owner in a company by investing in the

company's stock. For example, someone might choose to buy shares of Apple stock in
the stock market. If that person bought a majority of shares in Apple (a company
worth billions of dollars), he/she could even influence Apple's business by voting in
annual general meetings or becoming a board member. By acquiring
a controlling interest in the company, a person could suggest product changes
in board of directors committee meetings, and the company's executives could
choose to make those changes. If they did not, they could be fired by board members
with the majority of votes.
FULL TEXT[ EDIT ]
A corporation is typically owned and controlled by its members. In a jointstock company, the members are known as shareholders and their share in the
ownership, control, and profits of the corporation is determined by their
portion of shares. Thus, a person who owns a quarter of the shares of a jointstock company owns a quarter of the company, is entitled to a quarter of the
profit (or at least a quarter of the profit given to shareholders as dividends),
and has a quarter of the votes that may be cast at general meetings.
In some corporations, the legal document establishing the corporation or
containing its rules determines the corporation's membership. Membership in
this case depends on the corporation type. For instance, in a
worker cooperative, people who work for the cooperative are members,
while in a credit union, people who have credit union accounts are members.
The day-to-day activities of a corporation are typically controlled by
individuals appointed by the members. In some cases, this will be a single
individua,l but more commonly, corporations are controlled by a committee or
by committees. Broadly speaking, two kinds of committee structures exist.
A single committee or board of directors is the method favored in most
common law countries. The board of directors is composed of both executive
and non-executive directors. The latter are responsible for supervising the
formers' management of the company.
A two-tiered committee structure with a supervisory board and a managing
board is common in civil law countries. Under this model, the executive
directors sit on one committee while the non-executive directors sit on the
other.
A Famous Investor
Warren Buffet is perhaps the world's most famous investor. He owns many companies through his
investment firm Berkshire Hathaway.

Source: Boundless. Ownership of Corporations. Boundless Business. Boundless, 26 May. 2016.
Retrieved 12 Jul. 2016 from https://www.boundless.com/business/textbooks/boundless-businesstextbook/types-of-business-ownership-6/corporations-50/ownership-of-corporations-249-1790/

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Business Legal Forms of Ownership

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BUSINESS LEGAL FORMS OF OWNERSHIP

Sole Proprietorship | Partnership | Corporation & LLC's

In making a choice of how your business will be

The size and scope of business you hoping to attain

The level of control you wish to have

The level of structure you are willing to deal with

The business's vulnerability to lawsuits

Tax implications of the different ownership

Expected profit (or loss) of the business

Whether or not you need to re-invest earnings into

Your need for access to cash out of the business for

The 4 basic legal forms of ownership are:

Dispute settlement clause.

Easiest and least expensive form of ownership to organize.

The business is easy to dissolve, if desired.

Form 1040: Individual Income Tax Return

Schedule C: Profit or Loss from Business (or Schedule C-EZ)

Schedule SE: Self-Employment Tax

Form 1040-ES: Estimated Tax for Individuals

Form 4562: Depreciation and Amortization

Form 8829: Expenses for Business Use of your Home

Employment Tax Forms

How to Form a Sole Proprietorship

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In a Partnership, two or more people share ownership of a single business. Like

Partnerships are relatively easy to establish; however time should be invested in

Prospective employees may be attracted to the business if given the incentive to

Profits must be shared with others.

Since decisions are shared, disagreements can occur.

Form 1065: Partnership Return of Income

Form 1065 K-1: Partner's Share of Income, Credit, Deductions

Form 4562: Depreciation

Form 1040: Individual Income Tax Return

Schedule E: Supplemental Income and Loss

Schedule SE: Self-Employment Tax

Form 1040-ES: Estimated Tax for Individuals

Employment Tax Forms

How to Form a Partnership

Read more: http://www.smallbusinessnotes.com/managing-yourbusiness/partnerships.html#ixzz4EDARNNhG

A corporation, chartered by the state in which it is headquartered, is considered by law to be

Corporations can raise additional funds through the sale of stock.

Form 1120 or 1120-A: Corporation Income Tax Return

Form 1120-W Estimated Tax for Corporation

Form 8109-B Deposit Coupon

Form 4625 Depreciation

Employment Tax Forms

Form 1120S: Income Tax Return for S Corporation

1120S K-1: Shareholder's Share of Income, Credit, Deductions

Form 4625 Depreciation

Employment Tax Forms

Form 1040: Individual Income Tax Return

Schedule E: Supplemental Income and Loss

Schedule SE: Self-Employment Tax

Form 1040-ES: Estimated Tax for Individuals

How to Form a Corporation

LEARNING OBJECTIVE[ EDIT ]

Define a sole proprietorship

KEY POINTS[ EDIT ]

In a sole proprietorship, there is no legal distinction between the

An example of a sole proprietorship is an individual who runs a local food

Give us feedback on this content:

A sole proprietorship, also known as the sole trader or simply a

business. It is a "sole" proprietorship in contrast with partnerships. More