Business Ownership Structures: Key Terms and Definitions for Students

Sole Proprietorship

A business that is owned and managed by one individual, utilizing a DBA license. Unlimited liability.

Partnership

A business that is owned and managed by two or more individuals with a partnership agreement. Liability depends on type of partnership established.

General Partnership

All partners have decision-making and management power. Unlimited liability.

Limited Partnership

Partnership with responsibility and liability divided; general partner runs the day to day and has unlimited liability.

llp

Not responsible for partner's 'wrong doings'; limited liability.

llc

Popular choice with a hybrid model; limited liability and tax pass through.

Corporation

Legal entity separate from its owners offering limited liability and must apply for a charter in the state in which it operates.

S Corp

Sells shares to the general public; owner's losses are limited to their investment.

C Corp

Company pays taxes on earnings; owners pay taxes on their dividends.

B Corp

New concept with the purpose of explicitly including public benefit versus only considering maximizing shareholder value.

Franchise

Sells a company's goods and services for a royalty fee.

Franchisee

Gets access to the franchisor's proprietary knowledge base, systems, processes, training programs, and trademarks.

Franchisor

Allows the franchisee to operate and sell the franchisor's product or service under the brand name.

Franchise Fee

One time fee paid to the franchise.

Royalty Fee

Annual fee paid to the franchise. Based on an agreed upon percentage of sales.

Liability

The legal responsibility of an individual or entity for business decisions, debts, and obligations.

Unlimited Liability

Extends beyond the financial investment; personal assets are at stake.

Limited Liability

Restricts loss to the total amount of an investment.