BU111 Full Study Notes - Forms of Business...

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Forms of Business Ownership(Chapter 4) Unincorporated Businesses Law does not separate the business and the owner of the business Business assets are classed as personal assets Unlimited Liability Should the business begin to fall, the debts of the business are the debts of the owner Sole Proprietorship An unincorporated business owned and operated by only one person their private profit Advantages Easy to form/Easy to dissolve this is because there are no legal restrictions to establish a sole proprietorship (May need a license). I.e. Snow Shovelling Owner has sole claim on all profits and must bear all losses, this means there are higher levels of incentives High levels of personal freedom and personal satisfaction o Be your own boss Speed of decision making o Do what you want Tax advantages o As long as you are generating losses, those losses can be written off against any other sources of personal income. Not required to publish financial statements Disadvantages Unlimited Liability
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o Personal assets are at risk as creditors can use them against you Unlikely that business will continue if the owner dies or gets a long term illness Difficult to raise capital o Unable to sell shares o Restricted to Savings, love money, less likely bank loans. o Must pledge large collateral to get decent loan Limited Management o Rare to find a person with all the skill required to make a business successful Tax Disadvantage o Taxed on personal tax rates Higher than private corporation tax rates Partnerships Business owned and operated by two or more people for their private profit The Partnership Agreement Verbal/Written (Legal Document) agreement designed to prevent future misunderstanding between partners Rights and Responsibilities of partners Outlines how certain issues will be handled and resolved o New Partner, Withdraw Investment Contents Name of partners Type of Partner (General/Limited)
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Financial Contribution Division of profits How to add a new partner Procedure to withdraw investments (Reason why partnerships are not popular) o Sell your investment to existing partner (Poor Performance) o Sell investment to an outsider Individual may not be acceptable to the other partners in the company o Liquidate Business Sell assets/Divide Profits Better to sell business as a going concern Types of Partners General Partnership must have at least one of these Unlimited Liability o Joint Liability All partners equally liable for business debts o Several Liability Responsible for covering any unpaid shares by other partners Allowed to be involved in the day-to-day management of business Limited
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Liability limited to investment No role in day-to-day management of business o Strictly investor Any actions you take in the business turns you into a general partner o Now has unlimited liability Advantages Easy to form o Need a partnership agreement (Lawyer required)
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This note was uploaded on 08/10/2011 for the course BUS 111 taught by Professor Jimmccutcheon during the Spring '09 term at Wilfred Laurier University .

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BU111 Full Study Notes - Forms of Business...

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