MGT 111 Chapter 5 - MGT 111 Notes Chapter 5 CHOOSING FROM A...

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MGT 111 Notes: Chapter 5 CHOOSING FROM A BUSINESS OWNERSHIP List the features, advantages, and disadvantages of the various legal forms of business, especially partnerships, corporations and franchises. Sole Proprietorships: the simplest General and Limited Partnerships: less simple Corporations: the most complex Franchises, which can be any one of the three above. o BASIC FORMS OF BUSINESS OWNERSHIP o Sole proprietorship: a business that is owned, and usually managed, by one person. o Partnership: a legal form of business with two or more owners. o Corporation: a legal entity with authority to act and have liability separate from its owners. SOLE PROPRIETORSHIPS Easiest type of business to explore o PROS o CONS o Ease of starting and ending the business. o Unlimited liability o Being your own boss o Limited financial resources. Funds available to the business are limited to the funds that one (sole_ owner can gather. Partnerships and corporations have a greater probability of obtaining the needed financial backing to start a business and keep it going. o Pride of ownership o Management difficulties o Leaving a legacy o Overwhelming time commitment
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o Retention of company profit. You do not have to share any of that money with anyone else except for with the government. o Few fringe benefits. If you are your own boss, you lose the fringe benefits that often come from working for others. You have no paid health insurance, no paid disability insurance, no sick leave, and no vacation pay. These benefits can lead up to 30% of a workers income. o No special taxes. All the profits of a sole proprietorship are taxed as the personal income of the owner, and the owner pays the normal income tax on that money. However, owners do have to estimate their taxes and make quarterly payments to the govt or suffer penalties for nonpayment. o Limited Growth. Expansion is often slow since a sole proprietorship relies on its owner for most of its creativity, business know-how and funding. o Limited Life Span if the sole proprietor dies, is incapitated, or retires, the business no longer exists (unless it is sold or taken by over the sole proprietor’s heirs). PARTNERSHIPS o General partnership: a partnership in which all owners share in operating the business and assuming liability for the business’s debts. o Limited partnership: a partnership with one or more general partners and one or more limited partners. o General partner: an owner (partner) who has unlimited liability and is active in managing the firm. o Every partnership must have at least one general partner. o Limited partner: an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.
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