Comm law 2- business entities- sole proprietorship

How to choose which entity

asking hard questions

What are the hard questions

1. who will be the owners?

2. who will own what % of the business?

3. who will be in the position of control?

4. what property and how much cash will be contributed to the business?

5. is the business expected to initially generate profits or losses

6. how will the business return its profit to its owners?

7. how much time will the participants be required to devote to the business

8. what incentives will there be to remain with the company

9. what happens if a founder quits?

10. what protections will a founder have against being forced to leave a company?

11. what are the future plans?

Sole Proprietorship is…

the easiest (just have to start doing business)

Ownership of sole proprietorship

• sole proprietor owns everything

• no division between proprietor and their personal assets (dangerous)

Creation and maintenance of sole proprietorship

easy

Taxation of sole proprietorship

pass thru

what is pass thru taxation

(sole proprietor) will not pay taxes, they only pay personal taxes on assets (advantage: personal taxes are lower)

liability of sole proprietorship

if you get sued you have 100% personal liability (not suing the proprietorship, going right after personal assets)

control and management of sole proprietorship

up to the sole proprietor (can have employees if you choose)

attractiveness of sole proprietorship to potential investors

none- won’t have any control

termination of sole proprietorship

simple- just stop doing business

advantages of sole proprietorship

• freedom

• start quickly

• try out business idea

• get all the profits

• tax advantages

disadvantages of sole proprietorship

• hard to gain capital

• risky

• hard to gain employees