Business world - Exploration of the Contemporary Business...

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Exploration of the Contemporary Business World Business Ownership Let’s take a brief look at the 3 forms of business ownership: Sole Proprietorship Owned and operated by 1 person; requires no formal documents; sole proprietor is personally liable for all debts and obligations; not a taxable entity – taxes pass through to the sole proprietor. Over 70 % of U.S. businesses are sole proprietorships. This is an easy and inexpensive way to start a business. It’s easier to file taxes as income/loss passes directly through to the owner and you are your own boss. You make the decisions and control the money. The downside: a sole proprietor is liable for debt or lawsuits; raising capital is more difficult; limited expertise in all areas. General Parnership Owned and operated by 2 or more people; no formal documents requires though most have an agreement specifying rights, duties, and obligations; partners are jointly liable for all partnership obligations; not a taxable entity – allocations of income or loss pass through to partners. General Partnerships are also easy and inexpensive to form. Owners may have diverse skills and expertise to bring to the party. Partnerships have relative freedom from government regulations and no special taxation. The downside: potential conflicts between partners; unlimited liability and potential loss; profits have to be shared; may be difficult to leave or end partnership. Cooperatives Owned and operated for the benefit of its owners. Profits/losses distributed among the members. Typically found in agriculture, retail, and restaurant industries. Ocean Spray and Cabot Cheese are cooperatives. The downside: can be difficult to attain outside financing; large investors may have little incentive to deal with so many owners; active engagement of members may drop off. Corporations
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legal entities that exist independent of owners; requires Articles of Incorporation (can be costly and complex to form); Corporation taxed as a separate entity and dividends/capital gains also taxed. The advantages of a corporation are the limited liability (owners personal assets aren’t on the line), simplicity of ownership transfer, better access to financing, unlimited life span, and tax deductions as a separate legal entity. Corporations may be structured as a General Corporation, Close Corporation; Limited Liability Corporation (LLC), or S Corporation depending upon the business. The downside: costly and complex to form; government requirements/restrictions; double taxation of profits. Public Benefit Corporation A legal status that is conferred by the state (referred to as a B corporation). This form of ownership is available in 26 states and pending in 18 more. In the first month it was available 24 companies incorporated with this status. This requires companies to document that they meet a high level of social and environmental performance, transparency and accountability. The downside: the application process may be daunting; accountability can be difficult when decisions being made may impact the status of this type of corporation.
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