Summary: How To Form A Business
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1 How to form a business
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What are the advantages of sole proprietorship?
- Easy to start/end a business
- You're your own boss
- No special taxes
- Pride of ownership
- Leaving a legacy
- Not sharing the profits -
What are the disadvantages of sole proprietorship?
- unlimited liability
- limited financial resources
- management problems
- limited growth
- huge time commitment
- very few benefits
- limited life span -
Why would unlimited liability be considered a major drawback to sole proprietorship?
The sole proprietor is liable for all debts and obligations of the business and must pay them even if it means selling your house/car/etc. -
What are the 4 types of partnerships?
1. General partnership; all participants are equal.
2. Limited partnership; mix of general and limited partners (they invest, but don't manage/bear risks)
3. Master limited partnership (MLP): similar to a corporation, but avoiding corporate taxes.
4. Limited liability partnership (LLP); liability of the owners is limited, they are only responsible for the part of their investment. -
What are the advantages of partnerships?
- More financial resources
- Shared management + pooled skills and knowledge
- Longer survival
- No special taxes -
What are the disadvantages of partnerships?
- Unlimited liability
- Disagreement among partners
- Sharing the profit
- Difficult to end -
What's a conventional (C) corporation?
A state-chartered legal entity with the authority to act and have responsibilities separate from its owners. -
What are the advantages of corporations?
- Limited liability!
- More financial resources
- Size
- Unlimited life span
- Easy to change ownership
- Easy to attract employees
- Separation of ownership form management -
What are the disadvantages of corporations?
- Initial costs
- Loads of paperwork
- Two tax returns
- Double taxation
- Size
- Difficult to end
- Possible conflict with stockholders/board of directors -
What are S corporations?
Corporation created by the government which looks like a corporation, but is taxed like sole proprietorships/partnerships
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