notes - February 4, 2008 Chapter 6 Chapter Objectives The...

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February 4, 2008 Chapter 6 Chapter Objectives The three types of business firms How investment is carried out The difference between gross investment and net investment How capital is accumulated The determinants of the level of investment The graphing of the C + I line Proprietorships, Partnerships, and Corporations Proprietorship Proprietorships are owned by individuals Proprietorships are almost always a small businesses Grocery stores, barbershops, restaurants, family farms, gas stations, etc Some Advantages of a proprietorship You can be your own boss Your income is taxed only once Some Disadvantages of a proprietorship The largest is unlimited liability Partnership Partnerships are owned by two or more people Some law and accounting firms have hundreds of partners Some Advantages of a partnership It is easier to raise more capital The work and responsibility can be divided Some Disadvantages Partnerships must be dissolved when one partner dies or wants to leave Unlimited liability Corporation A corporation is a legal entity like a person Most corporations are small firms Corporations are owned by the stockholders It is easier to raise money by selling stock
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Most corporations are not publicly held Proprietorships, Partnerships, and Corporations Corporation Some Advantages of a corporation Limited liability Corporations have potential perpetual life Corporations may pay lower federal taxes Some Disadvantages of a corporation You need a lawyer and have to pay a charter fee You have to pay federal (perhaps state) corporate income tax Double taxation Proprietorships, Partnerships, and Corporations The New Hybrid Varieties Limited Partnerships, S corporations, and Limited Liability companies Do not pay corporate income taxes Taxes assessed solely on the individual level profits Minimize legal risks to their investors So far on a small minority of businesses have take advantage of these legal loopholes to enjoy the security of limited liability without paying corporate income tax
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This note was uploaded on 03/18/2008 for the course ECON 202 taught by Professor Amsler during the Spring '08 term at Michigan State University.

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notes - February 4, 2008 Chapter 6 Chapter Objectives The...

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