Ch11-SG - Business Organizations WHATTHIS CHAPTERISA BOUT...

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Chapter 11: Business  Organizations W HAT   THIS  C HAPTER  I S  A BOUT This chapter  sets  out  features  of the  major  traditional  business  forms—sole  proprietorships,  partnerships,  and  corporations—and  other  forms  for doing  business. The chapter  includes  discussions  of private  franchises  and   the rights and  duties of corporate directors, officers, and  shareholders. C HAPTER  O UTLINE I. SOLE PROPRIETORSHIPS The simplest form of business—the owner is the business. A. A DVANTAGES The proprietor  takes all the profits.  Easier to start  than  other  kinds  of businesses  (few  legal forms  in- volved); has more flexibility (proprietor  is free to make  all decisions); owner  pays only personal income  tax on profits. B. D ISADVANTAGE The proprietor  has all the risk (unlimited  liability for all debts); limited  opportunity  to raise capital; the  business dissolves when  the owner dies. II. PARTNERSHIPS Arises from an agreement  between  two or more persons to carry on a business for profit. A. G ENERAL  P ARTNERSHIPS 1. General Partners Are Co-owners General  partners  jointly  control  the  operation  and  share  the  profits.  No  particular  form  of agree- ment is necessary to create a general partnership; partners may agree to any terms. 2. A Partnership Is a Legal Entity for Limited Purposes For  example,  ownership  of property.    Partners  are  personally  liable  for  partnership  obligations;  partnership  is not subject to federal income tax (profit is taxed as individual income to the partners). B. L IMITED  P ARTNERSHIPS Consist of at least one general partner  and  one or more limited  partners.  General partners  run  the busi- ness  and  are  subject  to  personal  liability  for  partnership  obligations.    Limited  partners  have  limited   liability. III. CORPORATIONS A corporation  consists of shareholders, who  own  it; directors, who  are elected  by the shareholders  to man - age it; and  officers, who oversee daily operations. A. A DVANTAGES Liability of the owners (shareholders) is usually limited  to their investment; corporation  can raise capital  by selling shares of stock. 85
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86 UNIT 3: THE PRIVATE ENVIRONMENT B. D ISADVANTAGES 1. Corporate Income Is Taxed Twice (1) As income  to the firm and  (2) when  distributed  to share holders; this may  be avoided  by electing   to be, for tax purposes, an S corporation, which is not taxed at the corporate level.
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