Welcome to English as a Second Language podcast number 712.
Types of Business Entities This is English as a Second Language podcast, episode 712.
I'm your host, Dr Jeff McQuillan, coming to you from the Center for Educational Development in beautiful Los Angeles, California.
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This episode is a dialogue between Ron and Marcella.
It is about the kinds of business organizations, the legal ways of organizing your business in the United States, what we call business entities.
Let's get started.
I'm only your tax accountant, but let me give you a piece of advice.
If you're planning to start a business, you'll want to carefully consider what type of business entity you want to do business under.
Is that important?
My parents ran a mom and pop store for 40 years, and they never had to think about stuff like that.
I don't know about your parents' business, but opening a store these days means having to think about the tax implications and liability issues.
Liability issues?
You'll probably want to consider forming a corporation or an LLC.
You'll be a sole proprietor, right?
You're not going into business with someone else, are you?
I'll have two partners actually.
In that case, you'll also want to think about things like the transferring of interests and the duration of the entity.
Wow, starting a business is a lot more complicated than I thought.
My advice
Get a lawyer.
And the sooner, the better.
Ron begins by saying to Marcella, I'm only your tax accountant.
But let me give you a piece of advice.
An accountant is someone who takes care of your financial records, who makes sure that you are keeping track of what you spend and what you make.
Usually accountants prepare tax returns, tax forms for the government for your business.
He, Ron, is a tax accountant.
It's a person who specializes in looking at the tax situation for a business.
He's going to give Marcella a piece of advice.
A piece of advice is really the same as a sentence or one statement of advice, one idea.
He says, if you're planning...
If you plan to start a business, you'll want to carefully consider what type of business entity you want to do business under.
Business entity is the way the business is structured legally, the way that it is recognized legally, usually requiring some sort of registration with the government, but not always.
Marcella says, is that important?
My parents ran a mom and pop store for 40 years, and they never had to think about stuff like that.
Mom and pop. stands for mother and father.
Pop is an informal way of referring to your father, your dad.
Mom and Pop Businesses are owned by a married couple, a husband and a wife.
Often the term is used to describe family-owned businesses, businesses that perhaps the parents own and the children work in, for example.
Marcella says that her parents had a mom-and-pop store and they never thought about business entities.
Ron says I don't know about your parents business, but opening a store these days meaning nowadays, today means having to think about the tax implications and liability issues.
The way you organize your business has two important consequences.
One is tax implications.
Implication is really another name for consequences, what will happen as a result of what you do.
Tax refers to the money you have to pay the government for the money that you make, the profits that you make.
Liability has to do with whether something goes wrong, and if it does, who's going to pay for it.
If a customer is in your store and they fall and hurt themselves you, as the owner of the store, might be liable.
You might have to pay for their injury.
They may sue you.
They may go to court, to the legal system, and try to get money from you.
All of these things are related to the general concept of liability.
Who's responsible?
Marcella says liability issues.
Ron says yes.
What if, or imagine...
What if somebody sues you?
To sue S-E-U, as I mentioned, is to take someone to court, to the legal system, and demand that they give you money because they did something wrong to you.
The word sue has other meanings in English.
Take a look at our learning guide for some additional explanations.
Ron says without proper safeguards, a lawsuit could bankrupt you and your business.
A safeguard S-A-F-E-G-U-A-R-D.
One word is something that you do to protect yourself in case something bad happens.
We might also call it a precaution.
For example, I buy...
Trip insurance.
I buy travel insurance before I go on a long vacation, in case there's a problem with the plane or something goes wrong.
The insurance will pay me for the money I have lost.
That is an example of a safeguard.
Ron says without proper or correct safeguards, a lawsuit could bankrupt you.
A lawsuit L-A-W-S-U-I-T.
One word is the legal process of suing you, of taking you to court, to the legal system, and demanding money.
That whole process is called a lawsuit.
To bankrupt someone means to have the business or the person go to the government and say I don't have any more money.
And this gives you a certain protection against people who are asking or demanding money from you.
However, normally the term bankrupt, in the context that we're hearing it here, refers to a failure of your business, that your business will lose money and that you will lose your business in effect.
Right.
It has a legal term, a legal definition rather.
But more generally, to bankrupt something or someone means that they are financially ruined.
It's a disaster for them.
They may lose their business and so forth.
Marcella said, I never thought of that.
Ron says you'll probably want to consider forming a corporation or an LLC.
So there are different types of business entities that are popular or common in the United States.
One of the most common is a corporation.
A corporation is a company that is legally separated from its owners in a way that protects the owners in case there's a problem in the business.
Technically, the corporation is like another person.
Legally and Typically in a corporation, you have people who own parts of the corporation, what we call shareholders.
They own a part of the corporation.
Sometimes the corporation is public and you can buy shares.
A part of the company, anyone can buy a part of the company.
Big companies like Google and Apple and Microsoft are what we call public corporations.
Anyone can be part owner by buying what are called shares or stock in the company.
If the company, the corporation, gets sued...
The personal wealth of the people who are part owners are not at risk.
That is, let's say, you have a company that has 100000 and each of the shareholders has 200000 in their bank account.
Well, if you sue the corporation, the corporation... only has to pay from the $100,000.
It doesn't affect the individual shareholders, the individual owners.
Their $200,000 in the bank is not something that you can get from the company.
So the corporation separates the financial interests, the financial matters of the business from the financial matters of the individual person.
A kind of corporation is called limited liability corporation.
That's what an LLC is.
Normally we use the abbreviation LLC.
An LLC is a kind of business that is like a corporation, but it's also like another kind of business entity, a partnership entity.
A partnership is when two people or a small group of people get together and decide that each person will own part of the business.
But a partnership doesn't have the same legal protections as a corporation does.
So the LLC is sort of a combination of a corporation and a partnership.
Ron says, you'll be a sole proprietor, right?
A sole proprietor is somebody who owns the business but doesn't have any separate legal organization for the business, so that if there's a problem, both his or her personal finances as well as the business finances can be at risk.
You could sue them.
There's no protection for what we would call your personal assets the money and assets, other valuable things that you own personally.
Sole proprietorships do not have the same protections as corporations and LLCs.
Ron says, you're not going into business with someone else, are you?
To go into business with means to open a business with someone else.
Marcella says, I'll have two partners, actually.
Once again, a partner is someone who agrees to work with you on the business and own the business with you.
Ron says.
In that case, in that situation, you'll also want to think about things like the transferring of interests and the duration of the entity.
To transfer interests is to give or sell your ownership in something to another person.
So let's say you have two partners and they start a business together.
And then one says, I don't really like this business.
I want to leave.
You need to have some process, some agreement about how that person can sell their interests in the company.
Their interests are the things that they have invested, the money that they have in the company.
Duration has to do with how long something lasts.
So the duration of a partnership would be determined by the agreement.
You might decide we're going to be partners for five years, and then we'll decide what to do then.
Marcella says, Ron says, Get a lawyer, and the sooner the better.
A lawyer is another word for an attorney, someone who has legal expertise, someone who's a legal expert.
He says get a lawyer, and the sooner the better, meaning the faster that you get the lawyer, the better it will be for you.
Don't wait.
Get one as soon as possible.
So that's a little bit about business entities in the United States.
Now let's listen to the dialogue at a normal rate of speed.
I'm only your tax accountant, but let me give you a piece of advice.
If you're planning to start a business, you'll want to carefully consider what type of business entity you want to do business under.
I don't know about your parents' business, but opening a store these days means having to think about the tax implications and liability issues.
Liability issues?
Yes.
What if somebody sues you?
Without proper safeguards, a lawsuit could bankrupt you and your business.
I'd never thought of that.
You'll probably want to consider forming a corporation or an LLC.
You'll be a sole proprietor, right?
You're not going into business with someone else, are you?
I'll have two partners, actually.
In that case, you'll also want to think about things like the transferring of interests and the duration of the entity.
Wow, starting a business is a lot more complicated than I thought.
My advice?
Get a lawyer, and the sooner the better.
The duration of our dialogues is usually just a minute or two, and they're all written by the wonderful Dr Lucy Say.
From Los Angeles, California, I'm Jeff McQuillan.
Thank you for listening.
Come back and listen to us again here on ESL Podcast.
English as a Second Language Podcast is written and produced by Dr Lucy Say, hosted by Dr Jeff McQuillan.
Copyright 2011 by the Center for Educational Development.
