Business Principles Exam 2.docx

Business Principles Exam 2.docx - Sole Proprietorship A...

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Sole Proprietorship -- A business owned, and usually managed, by one person. 72% Partnership -- Two or more people legally agree to become co-owners of a business. 8% Corporation -- A legal entity with authority to act and have liability apart from its owners. 20% Unlimited Liability -- Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else. o Limited financial resources o Management difficulties o Overwhelming time commitment o Few fringe benefits o Limited growth o Limited life span General Partnership -- All owners share in operating the business and in assuming liability for the business’s debts. Limited Partnership -- A partnership with one or more general partners and one or more limited partners. General Partner -- An owner (partner) who has unlimited liability and is active in managing the firm. Limited Partner -- An owner who invests money in the business, but enjoys limited liability. Limited Liability means that liability for the debts of the business is limited to the amount the limited partner puts into the company; personal assets are not at risk. Master Limited Partnership -- A partnership that looks much like a corporation, but is taxed like a partnership and thus avoids the corporate income tax. (One example of a master limited partnership is Kinder Morgan Energy Partners which is engaged in energy storage and operates 75,000 miles of pipelines.) Limited Liability Partnership -- Limits partners’ risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision. Advantages of Partnerships o More financial resources o Shared management and pooled/complementary skills and knowledge o Longer survival o No special taxes Disadvantages of Partnerships o Unlimited liability o Division of profits o Disagreements among partners o Difficult to terminate Elements of a partnership agreement o Capital contributions o Responsibilities of each partner o Decision-making process o Shares of profits or losses o Departure of partners o Addition of partners Conventional (C) Corporation -- A state- chartered legal entity with authority to act and have liability separate from its owners (its stockholders). Advantages of Corporations o Limited liability o Ability to raise more money for investment o Size o Perpetual life o Ease of ownership change o Ease of attracting talented employees o Separation of ownership from management Disadvantages of Corporations o Initial cost o Extensive paperwork o Double taxation o Two tax returns o Size o Difficulty of termination o Possible conflict with stockholders and board of directors S Corporation -- A unique government creation that looks like a corporation, but is taxed like sole proprietorships and partnerships.
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