Types of Businesses Part 1

ENTREPRENEURSHIP

TYPES OF BUSINESS

OWNERSHIP

Warm Up

Poll

You started a beach equipment rental company. You provide customers with equipment

necessary for a day at the beach. Currently, you offer your customers beach umbrellas,

canopies, towels, snorkeling gear, and an ice chest filled with drinks and snacks. Your

service is currently only available at one beach. Customers log into their beach rental

app and select which rental equipment they want and the date and time they would like

you to set up their beach equipment for them. Right now, you are working solo and are

in charge of everything from receiving requests to setting up to clean up. Your business

is doing well and you are happy with the profit you have made. Choose from the options

below on how you will move forward with our business.

• Continue working alone because things are going well.

• Create a partnership with one other person so that the two of you could split up

  tasks. If you have a partner, you cold work more efficiently and make more

  profit.

• Hire 3-4 people to work for you so that you can delegate tasks and offer your

  service at more beach locations.

OBJECTIVES

Students will identify the pros and cons of different forms
of business organizations and decide which business
organization is best for their business.

• Entrepreneurs need to understand the advantages

and disadvantages of various types of businesses so
that they can choose the one that best suits their
needs.

SOLE PROPRIETORSHIP

• The easiest and most popular form of business

ownership is the sole proprietorship.

sole proprietorship

a business that is owned and
operated by one person

SOLE PROPRIETORSHIP

• The owner of a sole proprietorship:

•

receives the profits,

•

incurs any losses, and

•

is liable for the debts of the business.

SOLE PROPRIETORSHIP

• In a sole proprietorship the owner must decide how

much liability protection he or she needs.

liability protection

insurance against the debts
and actions of a business

ADVANTAGES

• Sole proprietorship is easy and inexpensive to create.

The owner has complete authority over all business activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at the personal rate
of the owner.

DISADVANTAGES

The owner has unlimited liability.

Raising capital is more difficult.

The business is totally reliant on the skills and abilities of the
owner.

The death of owner dissolves the business unless
there is a will to the contrary.

DISADVANTAGES

• The biggest disadvantage of a sole proprietorship is financial.
• In this form of business ownership, the owner has unlimited

liability.

unlimited liability

full responsibility for all debts
and actions of a business

Multiple Choice

What is a Sole Proprietorship?

• A business where 2 or more people share ownership

• A business owned by shareholders

• A business that is owned by one individual

Multiple Choice

What percentage of the profits in sole proprietorship is the owner designated to?

• 75%

• 100%

• 54%

• 0%

Multiple Choice

Which of the following is an advantage of sole proprietorship?

• Owner has complete control

• Owner gets all the stress

• Cannot raise capital

• All the above

Multiple Choice

A sole proprietorship is easier and less costly than starting any other form of business.

• True

• False

Multiple Choice

Which of the following is a disadvantage of a sole proprietorship?

• Easy to start

• Owner is his/her own boss

• Owner keeps all profits

• Owner must pay for everything needed for the business

Multiple Choice

Select the business description that sounds like a Sole Proprietorship.

• Elise MacMillan and her brother Evan co-founded The Chocolate Farm in Englewood,

  Colorado, in the late 1990s.

• DoorDash, Inc. went public on 12/9/2020 and shares initially sold for $102.00. They sold 33 million shares on day one.

• Jeremy Stouder opened the Harris Square Chick-fil-A location in Harrisburg, NC in 2019.

• Wally Amos launched the Famous Amos Cookie Company in a Hollywood, CA storefront on Sunset Boulevard in 1975.

PARTNERSHIP

• A partnership draws on the skills, knowledge, and financial

resources of more than one person.

partnership

an unincorporated business
with two or more owners who
share the decisions, assets,
liabilities, and profits

PARTNERSHIP

General vs Limited

The law requires that all
partnerships have at least
one general partner.
A partnership may be set
up so that all of the
partners are general
partners.

general partner

a participant in a partnership
who has unlimited personal
liability and takes full
responsibility for managing the
business

PARTNERSHIP

• Some partnerships include a limited partner.

limited partner

a partner in a business whose
liability is limited to his or her
investment; a limited partner
cannot be actively involved in
managing the business

PARTNERSHIP

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

PARTNERSHIP

It is difficult to dissolve one partner’s interest without
dissolving the partnership.

There may be personality conflicts.

Partners can be held liable for each others’ actions.

Multiple Choice

Which of the following is an advantage of a partnership?

• Partnership must be reorganized if one partner quits

• Partners share skills and talents

• Partners must share profits

• A partnership agreement is needed to start

Multiple Choice

Which of the following is a disadvantage of a partnership?

• Relatively easy to start

• Partners might not get along well

• Easier to obtain capital than in a sole proprietorship

• Partners share skills and talents

Multiple Choice

Select the business description that sounds like a Partnership.

• Elise MacMillan and her brother Evan co-founded The Chocolate Farm in Englewood,

  Colorado, in the late 1990s.

• DoorDash, Inc. went public on 12/9/2020 and shares initially sold for $102.00. They sold 33 million shares on day one.

• Jeremy Stouder opened the Harris Square Chick-fil-A location in Harrisburg, NC in 2019.

• Wally Amos launched the Famous Amos Cookie Company in a Hollywood, CA storefront on Sunset Boulevard in 1975.

Review

Business Structures

Exit Ticket

Multiple Choice

What kind of business is BEST described by these statements?
I am the only owner of my business. 
I take all the risks of doing business. 
I keep all the profits. 

• sole

  proprietorship

• partnership

Multiple Choice

A father who wants to take his son into the business with him should form this type of business.

• Sole Proprietorship

• Partnership

• Corporation

Multiple Choice

Someone who wants to control every aspect of their business should form this type of business.

• Sole Proprietor

• Partnership

• Corporation

Multiple Choice

Maria is using her savings to open a shop selling clothing from Mexico. What type of business is it?

• Sole Proprietorship

• Partnership

• Corporation

Multiple Choice

Louise and Susan are meeting to plan a new advertising campaign for the town newspaper they own. What type of business do they have?

• Sole Proprietorship

• Partnership

• Corporation

Multiple Choice

When Luigi's Pizzeria went out of business, he was still responsible for paying all of the restaurant's bills. What type of business did he have?

• Sole Proprietorship

• Partnership

• Corporation

Multiple Choice

Marco's computer repair business has limited financial resources. What type of business is it?

• Sole Proprietorship

• Partnership

• Corporation

End of Part One

CORPORATIONS

In a corporation, the owners of the business are
protected from liability for the actions of the
company.

There are three types of corporations:

•C-Corporation
•Subchapter S Corporation
•Nonprofit Corporation

corporation

a business that is registered by
a state and operates apart
from its owners; it issues shares
of stock and lives on after the
owners have sold their interest
or passed away

C- CORPORATIONS

• A C-corporation is the most common corporate

form.

• C-Corporations: In smaller corporations, the

founders generally are the major shareholders.

C-corporation

an entity that pays taxes on
earnings; its shareholders pay
taxes as well

shareholders

the owners of a corporation

C-CORPORATIONS

ADVANTAGES

status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages

C-CORPORATIONS

ADVANTAGES

Corporate shareholders have limited liability, but some banks
require officers to personally guarantee the debts of the
company.

limited liability

partial responsibility of a
corporate shareholder; he or
she is responsible only up to
the amount of his or her
individual investment

C-CORPORATIONS

DISADVANTAGES

expensive to set up

income more heavily taxed

subject to double taxation on income

pays taxes on profits

stockholders taxed on dividends

S- CORPORATIONS

• Avoid double taxation with a

S-corporation

A corporation taxed like a
partnership

S- CORPORATIONS

• Advantages

• Profits are only taxed once at the shareholder’s personal tax

rate.

• The S-Corporation in not a taxpaying entity

• Disadvantages

• Can have no more than 75 stockholders who must be U.S.

citizens

• Can have only one class of stock
• Often restaurants are S-Corporations. If the business

produces enough cash, this form works

• If the business shoes a large taxable profit but has not

generated enough cash to cover the taxes, the owners
must pay the taxes out of their personal earnings

NON-PROFIT CORPORATIONS

• A nonprofit corporation must fall within one of four categories:
• religion
• charity
• public benefit
• mutual benefit

nonprofit corporation

a legal entity that makes
money for reasons other than
the owner’s profit; it can make
a profit, but the profit must
remain within the company

LIMITED LIABILITY COMPANY

• There are many benefits to forming a limited liability company

(LLC).

limited liability company (LLC)

a company whose owners and
managers have limited liability
and some tax benefits, but
which avoids some restrictions
associated with Subchapter S
corporations

LIMITED LIABILITY COMPANY

• LLC is simpler to set up than a corporation
• LLC allows for the flexibility of a partnership structure
• LLC protects its owners with the limited liability of a

corporation, its members are not liable for the
company’s debts.

• LLX is not subject to double taxation. Provides the

pass-through tax advantages of partnership. Profits
are taxed personally, and shareholders are taxed
only once.

CORPORATIONS

• Before deciding on a legal form, ask yourself key

questions about:

Making the Decision

•

willingness to assume liability

•

level of control wanted

•

length of time you expect to
own the business

•

your skills

•

access to capital

•

expenses