Essentials of Entrepreneurship: A Practical Approach
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General Entrepreneurship
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There are several legal forms of business that an entrepreneur can use. When deciding what type of business form to use, the entrepreneur should consult with an attorney and certified public accountant to determine what is the best form to utilize.
The business form should be selected after the economic and planning issues are examined. It should be determined in tandem with financing.
Below is a list of the legal forms of business and some short comments about each type. The major factors for selecting a particular legal form of business are also presented
Proprietorship
| Simple and cheap to establish | |
| No need to clear decisions or split profits | |
| No double taxation of profits | |
| Personal liability | |
| Lack of shared talents | |
| Death ends business |
Partnership
| Partnership agreement: what's included | |
| Can be simple to enter | |
| Access to more capital, talent, etc. | |
| Taxed only once | |
| Personal liability | |
| Death ends business | |
| Problems with partners |
Limited Partnership
| General partner manages the limited partnership | |
| Limited partners | |
| Tax advantages to limited partners | |
| Liability liability |
Corporation
| Limited liability | |
| Infinite life and transferability | |
| Easier to raise capital | |
| More discipline required | |
| Cost of formation | |
| Red tape and administrative expenses | |
| Heavier regulatory burden | |
| Double taxation |
Corporation -- "S" Election
| Maximum number of shareholders is 75 | |
| Only one class of stock but different voting rights is okay | |
| Taxed as individual | |
| File Form 2553 election | |
| 5-year waiting period to switch | |
| Domestic corporation owned by U.S. citizens | |
| No more than 80% revenue from non-US sources | |
| Tax basis increases as tax is paid on retained earnings |
Limited Liability Company (LLC)
| Relatively recent form of business | |
| Limited liability | |
| Finite life and limited transferability | |
| Fairly complex | |
| Similar advantages and disadvantages as the "S" corporation | |
| Use when "S" corporation not possible |
Major Factors in Selection
| Organizational requirements and cost | |
| Liability | |
| Continuity | |
| Transferability of interest | |
| Management control and regulation | |
| Ability to raise capital | |
| Taxation | |
| Shareholder oppression issues |
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