Business Organizations

How to Start a Business

Business Plan: Outlining a company’s goals + strategies (guide for growth)

Market Research: identify your target market + competition, identifying consumer needs + how to meet them

Register your business with the state & local government:

Licenses & Permits

Funding

Funding Types

Bootstrapping: Use your own $$$

Gov’t grant or loan

Finding investors in exchange for equity (%) of the company

Sole Proprietorship

Makes up 70% of all businesses, 1 Person Owns the business (ex: lawn care, hairdressers, daycare, farmers)

Sole Proprietorship Pros

Keep ALL profit, inexpensive to register, easy to establish, simple taxes - file a form 1040 (individual income tax return), fewer regulations & paperwork, full control over business

Sole Proprietorship Cons

Taking all the risk, liable to creditors & lawsuits, harder to raise capital, challenges with succession & continuity if owner dies or is absent

NO SEPARATION B/W YOUR PERSONAL ASSETS & BUSINESS LIABILITIES (UNLIMITED PERSONAL LIABILITY)

Partnership

-opened by two or more people

-sign a partnership agreement

Ideal for business owners/partners with complementary skills & expertise

Profits are divided among partners

Business Continuity is usually laid out in the partnership agreement

Partners usually pay taxes on their own personal tax return

General Partnership

All EQUALLY responsible

Limited Partnership

SOME partnership only liable for money contributed

Limited Liability Corporation (LLC)

Can be one or more members - “member” can be company or another LLC

SEPARATES BUSINESS FROM PERSONAL FINANCE

Members pay taxes on their personal income tax return (easier than corporate taxes)

Fairly easy to set up

need an accountant & lawyer to set up but not after

Less transparency, less regulated

Private Equity Firms

A group of ultra wealthy investors but businesses and reorganize or reconstruct them

manage the business for 10-12 years - sell for a profit

Nonprofit

• Charitable Organization, benefit society

• Operates like a business - revenue can come from donations, grants from the gov’t, earned income or vestment income for endowments

• Does not earn a profit  revenue must be used for the mission, not private gain → can be audited, can lose 501c3 status (IRS resignation)

DO NOT PAY TAXES (Red Cross)