Unit 2: Entrepreneurship and Legal Forms of Business
In this unit, we explore various forms of ownership (sole proprietorship, partnerships, and corporations) that affect how businesses are taxed, how profits are distributed, and what regulations must be followed. The form of ownership you choose corresponds to the growth, taxation, and future of your company. We also examine some techniques business owners use to analyze profitability. We review the characteristics of successful entrepreneurs, how small businesses impact the economy, and the role of the Small Business Administration in the United States.
Completing this unit should take you approximately 10 hours.
Upon successful completion of this unit, you will be able to:
- discuss the legal forms of businesses, including sole proprietorships, partnerships, corporations, limited-liability corporations, and subchapter S corporations;
- discuss the potential of a business to be profitable, when considering the legal form of business, tax rates, and break-even analysis;
- evaluate the appropriateness of the different legal forms of business for various business contexts; and
- analyze the impact of small business on the economy.
2.1: Legal Forms of Business
Review this overview of the various forms of business ownership, including advantages and disadvantages, to learn about some of the factors that go into deciding which form is best for any given situation. No hard and fast formula helps an entrepreneur pick the proper form. However, there are some important considerations, such as risk, taxes, transferability, and even image. After you read, complete the concept check questions about the different types of business structures: sole proprietorship, partnership, and corporations.
Read this section for a more in-depth look at these factors and some questions entrepreneurs can ask themselves to help them decide which form is right for them. Then we'll look at each of the forms in more detail.
Many new business owners choose the sole proprietorship because it is the most straightforward form to initiate and provides the most control since only one person makes the decisions (for good or ill). Read this section and pay particular attention to the discussion on unlimited liability, as this is a significant drawback for sole proprietorships. It might be interesting to try the exercise at the end of the section and find a sole proprietor in your area.
- Now let's look at partnerships: Just like in any other element of society, when more than one person is involved, things become a little more complicated. As you'll see, unlimited liability is an issue with partnerships as well. Read this section and in light of what you learn, think about what advice you would give Jason in the exercise at the end of the section.
Corporations are the most complicated form of business ownership. Remember, while it is more complex, it provides safeguards that sole proprietorships and partnerships do not. Read this section to learn about the most common type of corporation, the C Corporation. You'll also learn some important information about purchasing ownership in a publicly traded corporation in the form of stocks.
While C-corporations are the most common type of corporate ownership, there are other forms that you should be aware of. Read this section to learn about S-corporation, Limited Liability Companies, cooperatives, and non-profit organizations. Completing the exercise at the end of the section will give you a table to use as you prepare for the final exam.
Review the various options and select two business structures to compare and contrast. Review the different options and choose two business structures to compare and contrast.
2.2: Entrepreneurship and How Small Businesses Affect the Economy
- Read this brief webpage to determine if you have what it takes to be an entrepreneur. Then, write a summary paragraph explaining the characteristics of an entrepreneur that you believe you have and ones that you feel you could improve.
Read this section to learn more about the importance of small businesses to the US economy.
Read this section to gain an understanding of the industries you are likely to find small business operations. You'd be surprised at how much of the US economy is driven by small businesses.
Read these sections for more detail about starting a business and some of the advantages and disadvantages in store for small business owners.
Read this article for a detailed explanation of what duties are assigned to the U.S. Small Business Administration.
This article goes into more detail on specific programs the SBA offers, including a guaranteed loan program.
2.3: Analyzing the Potential of a Business to be Profitable
Read the introduction section to gain an understanding of the challenges facing business owners.
Read this section to see why business plans are essential and what sections should be included.
To see some examples of already written business plans and learn how to write a business plan of your own, review this article provided by the SBA.
Read this section and complete the exercise at the end for a more detailed look at how break-even analysis calculations are performed.
Read this article about the impact taxes have on the U.S. economy. Be sure to view the short video within the text for additional information.
Unit 2 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.