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Business Organization Types

Business Organization Types. Sole Proprietorship, Partnership, Corporation, S-Corporation, Non-Profit . Sole Proprietorship. One owner +/- One decision maker -------Owners are responsible (liable) for company +/- Owner and business are considered one ENTITY (thing)

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Business Organization Types

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  1. Business Organization Types Sole Proprietorship, Partnership, Corporation, S-Corporation, Non-Profit

  2. Sole Proprietorship • One owner • +/- One decision maker • -------Owners are responsible (liable) for company • +/- Owner and business are considered one ENTITY (thing) • +/- Owner’s money & business’ money are one + If company makes a lot of $ Owner makes a lot • If company loses money or gets sued Owner loses or gets sued ++++ 1.) Business’s profits and 2.) owners pay check are taxed ONLY ONCE • Company purchases are TAX DEDUCTIBLE • Subtract the amount spent for company from amount of taxable income

  3. Corporation • + Owner and Business are SEPARATE • +++++Owner is not PERSONALLY LIABLE for company’s actions • The owner is now protected from the company’s actions by THE CORPORATE VEIL (like a shield that protects the owner from beings personally sued or responsible) • Corporate veil can be PIERCED if it can be proven that owners allowed a problem/disaster to occur • -----Money is taxed TWICE • Company profits are taxed • Each workers wages or pay check are also taxed/Dividends payed to stock owners are taxed • Lots of paperwork and somewhat complicated to set up, definitely need to hire a lawyer to help and costs to set up • Lots of rules and laws they must follow • VERY STRICT, tightly monitored by the government

  4. Tax Deduction • Larry’s Lawn Mowers made 100,000 this year • Taxes are roughly 1/3 of Gross Income • So normally Larry would pay 1/3 of 100,000 in taxes, about 33,000 • This year larry spent 40,000 on a sweet new truck to tow his trailer with all his mowers • Larry put a Larry’s Lawn Mower Sticker on his truck and drives it everyday • Larry can DEDUCT (subtract) 40,000 from 100,000 and only pay taxes on what’s now left • So 100,000-40,000 = 60,000 so now larry only has to be 1/3 for taxes on 60,000 instead of on 100,000 • So 1/3 of 60,000 is 20,000 • SO Larry gets the truck he needed and pays 13,000 less in taxes • 40,000 minus what he saved in taxes 13,000 • So 40,000 – 13,000 = 27,000

  5. Partnership • Two or more owners • Owners decide how to divide up ownership • Owner with the majority of ownership has more decision making power • Taxed like a Sole Proprietorship ($ taxed once) • Tax deductions allowed like sole proprietorship • Liability is with the owners according to percentage of ownership

  6. LLC Limited Liability Companybest of corp & Soleproprietorhip/partnershipBEST FOR SMALL COMPANIES THAT TAKE RISKS AND THAT WANT TO APPEAR MORE PROFESSIONAL • Resembles a corporation in many ways • The choice to be taxed like a partnership though (ONCE) • Easier to set up than a regular corporation • Less rules and laws to follow than a corporation • Liability is less than a partnership or sole prop • Owners are separate from the company • Can be formed or set up by just ONE person • --- Sometimes charged extra startup fees by state gov. • Have to hire a lawyer to set it up for you • But, MUCH easier to set up than a corporation but harder than a sole proprietorship or parntership • Can have one or more owners (share holders) • Best for companies like Larry’s Lawnmowers who have RISK but not necessary for Veronica’s Vinyl who don’t run a RISKY business

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