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Corporation. As a corporation, ownership of a business is shared. Corporations issue shares of stock to owners in accordance with their percentage of ownership interest. A person to whom shares of stock have been issued is a shareholder . A corporation can have just one shareholder or thousands. Shareholders cannot be liable for the debts of the corporation, even if the business fails. A corporation has a board of directors elected by the shareholders. The board of directors is responsible for making major business decisions. Partnership. A partnership is a business owned by two or more people . Partnerships differ from corporations in many important ways. First, a partnership does not have a board of directors. The partners are responsible for making business decisions. Also, partners can be held responsible for the debts of a partnership . Partners share in the profits in accordance with the size of their partnership interest and have a great deal of control over the direction and operations of the business. Limited Liability Company. A limited liability company (LLC) is a hybrid type of business structure. It is part corporation, part partnership. The main difference is in how it is taxed, the details of which are beyond the scope of this course. Understand however, that LLC stands for limited liability company and that it is a popular business entity which provides protection from personal liability for the debts of the business . Sole Proprietorship. A sole proprietorship is a popular and simple business entity. As its name indicates, it is a business owned and operated by one individual , such as a person who runs a small bakery or bike repair shop. A sole proprietorship can hire employees, buy and sell goods, and obtain loans in the name of the owner of the business. A sole proprietor is personally liable for the debts of the business. Buying a Business. Starting a business from scratch can be expensive and risky, but many people do it. They develop the product or service, form a business entity, obtain the required licenses and permits, and get the business up and running. Do you know it’s also possible to buy an existing, operational business with an established inventory, employees, and a client base? There are many different types of businesses to buy: small stores, hair salons, flower shops, clothing boutiques, home health care services, tech repair, restaurants, etc. In fact, young doctors and dentists often start their practices by buying out the practice of a retiring doctor or dentist. The advantages of buying a business are avoiding expensive start up costs, and being immediately operational. There are also downsides to buying an existing business. The purchase price may actually be higher than the cost of starting the business yourself because the price includes a premium for the initial business concept, customer base, brand recognition, and other work that has already been done. Due Diligence. When considering buying a business, conduct a thorough due diligence which is a careful review of all aspects of the business . This includes inspecting the physical location and condition, reviewing all leases, contracts, bank statements, and accounting records, counting the inventory, reviewing tax records, employee files, and operating permits and licenses. This is no time to go without professional help! Retain the services of a business lawyer and an accountant for help. A lawyer can assure that liability risks are eliminated or minimized. An accountant can confirm the financial condition of the business and whether the sale price is fair. The Franchise. A franchise is a form of business in which a company that already has a successful product or service (called the franchisor ) licenses another business (called the franchisee ) to operate under the franchisor’s name, using its products or services. Name recognition is just one advantage of a PRODUCT PREVIEW
Chapter 12 | Small Biz Whiz 224
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