1. 3-1
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

2. 3-2
Forms Of Ownership
Of Small Business
Primary Legal Forms
Advantages & Disadvantages
Of Each Form
Other Legal Forms
Chapter
3

3. Business Factors To Consider
Future Size
Nature
Desired Control
Legal Vulnerability
Tax Implications
Expected Profit (Loss)
Re-investment
Personal Cash Needs
3-3
Right Legal Form:
PhotoLink/Getty Images
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4. 3-4
Relative Positions
Of Legal Forms
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5. Legal Form By Industry
3-5
80%
70%
60%
50%
40%
30%
20%
10%
0%
Proprietorship Partnership Corporation
Services Trade Construction Finance/Ins. &
Real Estate
Manufacturing
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

6. Proprietorship Partnership Corporation
Manufacturing
3-6
Legal Form
By Industry’s Receipts
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Services Trade Construction Finance/Ins. &
Real Estate
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7. 3-7
Advantages/Disadvantages
Of Proprietorship
Insert
Figure 3.2
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8. Tax Forms: Sole Proprietorship
Form 1040: Individual Income Tax
Return
Schedule C: Business Profit(Loss)
Schedule SE: Self-Employment Tax
Form 1040ES: Estimated Tax For
Individuals
Form 4562: Depreciation & Amortization
Form 8829: Expenses For Business Use
Of Your Home
Forms 941, W-2, W-3: Employment Tax
Forms
3-8
Partial List Of Federal
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. 3-9
Schedule C
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10. 3-10
Advantages/Disadvantages
Of Partnership
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11. 3-11
General Partnership
Operations
Uniform Partnership Act
Partners Responsible For Other
Partners’ Actions
Liability:
Personal Property At Risk
All Debts Of Firm
Resolve Disputes Among
Partners(?)
S. Wanke/PhotoLink/Getty Images
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12. Types Of Partnerships
3-12
General
Partner
General
Partner
General
Partner
Partners Liable For
Each Others’ Actions
General
Partner
Limited
Partner
Limited
Partner
Unlimited Liability
Limited
Partner
Manage With
Liability = Capital
Contribution
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

13. Schedule E: Supplemental Income & Loss
Form 1040-ES: Estimated Tax For Individual
3-13
Partnership:
Legal/Tax Documents
Articles of Co-Partnership
Tax Forms
Form 1065 K-1: Partner’s Share
Of Income, Credit, Deductions
Form 4562: Depreciation
Form 1040: Individual Income Tax Return
Schedule SE: Self-Employment Tax
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

14. Form 1065 K-1 (Pages 1 & 2)
3-14
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. Form 1065 K-1 (Pages 3 & 4)
3-15
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16. 3-16
Advantages/Disadvantages
Of Corporation
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17. 3-17
Form 1120A
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

18. Form 1120 (Pages 1 & 2)
3-18
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19. Form 1120 (Page 3 & 4)
3-19
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20. Formation Of Corporation
Articles Of Incorporation-
Filed With State
Corporate Charter-
Comes From State
Buy-Sell Agreement- Include
In Articles Of Incorporation
3-20
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

21. Corporate Governance
3-21
Stockholders
Elects
Board Of
Directors
Appoints
Corporate
Officers
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

22. Exempt From Multiple Taxation
Less Than 75 Stockholders
TAXES
One Class Of Stock
No Corporations/Partnerships Can Be
Stockholders
Stockholders= U.S. Citizens
Or Permanent Residents
Early 1990s Lost Appeal Because Of
Tax Law Change
3-22
S Corporation
Royalty-Free/CORBIS
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

23. Form 1120S: Income Tax Return For S
Corporation
Form 1120S K-1: Shareholder’s
Share Of Income, Credit,
Deductions
Form 4625: Depreciation
Forms 941, W-2, W-3: Employment Tax Forms
Form 1040: Individual Income Tax Return
Schedule E: Supplemental Income(Loss)
Schedule SE: Self-Employment Tax
From 1040ES: Estimated Tax For Individuals
Other Forms
3-23
Partial List Of Federal
Tax Forms: S Corporation
Royalty-Free/CORBIS
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

24. Limited Liability Companies
3-24
Since 1977
Benefits:
Limited Liability
Taxed As Partnership
Similar To S Corporation
Owners = Members
Lifespan- Determined At
Organization
Emma Lee/Life File/Getty Images
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25. F. Schussler/PhotoLink/Getty Images
3-25
Other Legal
Forms Of Ownership
Limited Liability Partnership
Protects Individual Partners
Not Recognized By Every State
Family Limited Liability
Partnership
Partners Related
Agriculture/Family Farms
Professional Service Corporation
Provides Licensed Professional Services
Doctors, Lawyers, & Accountants
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

26. Forms Of Ownership (cont’d)
3-26
Other Legal
Nonprofit Corporations
Civic, Charitable, Educational,
Religious
Tax Exempt
Cooperative
Independent Producers
Buys/Sells For Clients
Joint Venture
Fractional Ownership
Royalty-Free/CORBIS
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

27. Form 1120S (Page 1 & 2)
3-27
Front
Back
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

28. Form 1120S (Page 3)
3-28
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

29. 3-29
Checklist For
Legal Form Evaluation
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.