Vocabulary
Sole Proprietorships
A sole proprietor is someone who owns an unincorporated business by himself or herself. A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business.
Partnerships
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
Corporation
A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Limited Liability Corporation (LLC)
A LLC is a business structure allowed by state statute. Owners of an LLC are called members. There is no maximum number of members. Most states also permit "single-member" LLCs, those having only one owner.
S Corporation
Corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income.
Non-profit organization
An organization that is exempt from federal (and sometimes state) taxes; receives income from donors, subsidized beneficiaries and, indirectly, taxpayers; and therefore should provide its goods or services free or below cost.
Consumer cooperative
A consumer cooperative is like a Sam's Club or Costco, where members join by paying a fee. The cooperative's members save money by buying goods and services in bulk.
Producer cooperatives
An example of a producer cooperative is agricultural producers who join together to purchase goods or services in bulk in order to gain a buying advantage they could not achieve if they were buying the goods and services individually.
Franchise
Authorization granted to someone to sell or distribute a company's goods or services in a certain area.
Retained Earnings
The percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt.