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Unformatted text preview: C HAPTER 14 B USINESS F ORMS AND A RRANGEMENTS Objectives After studying this chapter, you should have an understanding of: the characteristics of the major forms of business organizations the advantages and disadvantages of the major forms of business organizations the legal consequences of a partnership methods of arranging business activity Learning Outcomes Understand the differences between sole proprietorships, partnerships, and corporations (pages 317, 320, 332, 336) Understand the advantages and disadvantages of each form of business organization (pages 320, 329, 335) Understand the difference between unlimited liability and limited liability (pages 318, 330) Understand the significance of the difference between limited liability and unlimited liability when choosing the form of business organization (pages 318, 321, 333, 336) Recognize other business arrangements (page 336) Chapter Summary Every business must operate as a sole proprietorship, partnership or corporation. Both the sole proprietorship and partnership suffer from the disadvantage of unlimited liability for business debts, which means that personal assets can be seized to pay business debts. Since a corporation is a separate legal entity, it is responsible for its own debts. Shareholders cannot be called upon to pay the debts of the corporation, other than the purchase price of the shares. There are other advantages and disadvantages of each form of business organization that may influence the decision as to what form the business will use, such as taxation issues, but by far and away the major issue for consideration and planning revolves around the issue of liability. Study Outline Use this outline to prepare a complete set of notes for this chapter. Forms of Business Organization page 317 Sole proprietorship page 317 _____________________________________________ _______________________________________________________________________ 2008 BY N ELSON , A DIVISION OF T HOMSON C ANADA L TD . PART 4: STRUCTURING BUSINESS ACTIVITY Financial liability_________________________________________________________ Unlimited liability__________________________________________________ Profit sharing_________________________________________________________ Decision making______________________________________________________ Sources of capital______________________________________________________ Taxation ____________________________________________________________ Transferability________________________________________________________ Regulations___________________________________________________________ _______________________________________________________________________ Pros and cons of the sole proprietorship_______________________________________ _______________________________________________________________________ Partnership page 320 ___________________________________________________ _______________________________________________________________________...
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