Competency 310.1.2: Organizational Forms - The graduate can select the appropriate form of organization for a business.
310.1.2-01: Differentiate between a sole proprietorship and general partnership.
310.1.2-02: Differentiate between a general partnership and a limited partnership.
310.1.2-03: Identify the distinguishing characteristics of C-corporations.
310.1.2-04: Identify the distinguishing characteristics of S-corporations.
310.1.2-05: Recognize the characteristics of a limited liability company (LLC).
310.1.2-06: Determine the appropriate business form for a given situation.
As you work on this task, ask yourself why one form of business organization would be selected over another, particularly for a small business. What are the advantages and disadvantages of each form?
The business entity characteristics owners should consider fall into these seven categories:
• Liability: What are the limits on liability and protection of not only business assets, but personal assets and future earning power of the owner beyond this particular business?
• Income taxes: What are the features of each business entity that affect the amount of federal, state, and local income taxes paid by the business and/or owners?
• Longevity or continuity of the organization: What features of each form relate to forced dissolution of the business organization?
• Control: Who has ultimate control over important decisions? How much control does the owner have to grant to others?
• Profit retention: What portion of the profits does the owner have to give up because they have to be shared with others? How does this affect return on investment?
• Location (Expansion): What are the implications for moving or expanding the business into a different state? Will a separate legal entity have to be created or new documents filed in the new state? Are there advantages or disadvantages regarding how state taxes will be assessed?