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CHAPTER 5 terms

Understanding Business

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CHAPTER 5 – Choosing a form of Business Ownership Sole Proprietorship the most common form of business ownership – a business that is owned and usually managed by one person (easy to dissolve) Advantages: Ease of starting and ending the business Being your own boss; be in control Pride of ownership Leaving a legacy Retention of company profit No special taxes Disadvantages: Unlimited liability – risk of personal losses Limited financial resources Management difficulties Overwhelming time commitment Few fringe benefits Limited growth Limited life span Partnership a legal form of business with two or more people who agree to become co-owners of the business (not easy to dissolve) Corporation a legal entity with authority to act and have liability separate from its owners (easy to change ownership) Unlimited Liability any debts or damages incurred are your debts and you must pay them, even if you must sell all your personal assets General Partnership all owners share in operating the business and assuming liability for the business’s debts Limited Partnership one or more general partners and one or more limited partners Limited Partner an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment. Master Limited Partnership looks like a corporation, acts like a corporation and is traded on the stock exchanges like a corporation but it is taxed like a partnership and thus avoids corporate income tax
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