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Chapter 5 - Chapter 5 Choosing a form of business ownership...

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Chapter 5: Choosing a form of business ownership I. forms of business ownership a. sole proprietorship a.i. a business that is owned, and usually managed, by one person b. partnership b.i. when two or more people legally agree to become co-owners of a business c. corporations c.i. a legal entity with authority to act and have liability separate from its owners d. franchises d.i. the right ot use a specific business’s name and sell its products or services in a given territory e. cooperatives e.i. a business owned and controlled by the people who use it –producers, consumers, or workers with similar needs who pool their resources for mutual gain II. Percentages a. Numbers a.i. Sole proprietorships (74%) a.ii. Corporations 19% a.iii. Partnerships 7% b. Sales b.i. Coporations (89%) b.ii. Partnerships 5% b.iii. Sole proprietorships 6% III. Sole proprietorships a. Advantages SIX a.i. Ease of starting and ending the business a.i.1. easy to get in: just buy/leases equipment and announce you’re starting a business a.i.2. easy to get out: just stop—no one to consult or disagree with a.ii. Being yoru own boss a.iii. Pride of ownership a.iii.1. deserve all of the credit a.iv. Leaving a legacy a.v. Retain Profit a.vi. No special taxes b. Disadvantages ( SEVEN) b.i. Unlimited liability—the risk fo personal losses b.i.1. any debts incurred by the business are your debts and you must pay them no matter what b.ii. Limited financial resources
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b.ii.1. funds available to the business are limited to the funds that the sole owner can gather b.iii. Management difficulties b.iii.1. often find it hard to attract good, qualified employees to help run the business sbeause they can’t compete with the salary & fringe benefits offered by larger companies b.iv. Overwhelming time commitment b.v. Few fringe benefits b.v.1. no paid health insurance, no paid disaibility insurance, no sick leave, ad no vacation pay b.vi. limited growth b.vii. limited life span b.vii.1. can last no longer than the life of the sole owner IV. Partnerships a. Types of partnershps a.i. general partnership a.i.1. a partnership in which all owners share in operating the business and in assuming liability for the businesse’s debts a.ii. limited partnership a.ii.1. a partnership with one or more general partners and one or more limited partners a.ii.1.a. general partner : has unlimited liability and is acive in managing ht efirm a.ii.1.b. limited partner : invests money int eh business but doesn’t have any management responsibility or liability for losses beyond investment a.ii.1.b.i. Limited liability a.ii.1.b.i.1. limited partners are not responsible for the debts of the business beyond the amount of their investment—their liability is limited to the amount they put into the company a.iii. Master Limited partnership (MLP) a.iii.1. looks like ac orproatoin in that it acts like a corporation & is traded on the stock exchanges likea corporation, but is taxed likea partnership and thus avoids the corporate income tax b. Advantages of partnerships b.i. More financial resources b.i.1.
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