Business and Society test#2

Business and Society test#2 - Business and Society test#2...

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Industry competition Business and Society test #2: Chapter 5: Selecting a form of business ownership Forms of Business Ownership: Sole proprietorship: o Owned by a single owner Partnership: o Co-owned by two or more people o Co-owners must register with the state and may need an occupational license Corporation: o State chartered entity that pays taxes and is legally distinct from its owners *Corporations are able to grow much larger. Sole proprietorships : (a business owned by a single owner) *Easy to start Four characteristics: 1) Single owner 2) Bears all responsibility (legally responsible for all debts) law suits can occur “Second Chance” 3) Represents 70% of all firms in U.S. 4) Generate less than 10 percent of all business revenue Advantages:
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1) Retention of all profits 2) Ease of formation 3) Complete control 4) Lower taxes Disadvantages: 1) Incurs all losses 2) Unlimited liability 3) Financing limitations 4) Limited skills Types of Partnerships: General Partnerships: o All partners have unlimited liability a company gets sued, everyone gets sued Limited Partnerships: o Some partners have personal liability that is limited to the cash or property they invested in the firm o One or more general partners who actively manage the business, receive a salary, share in profits and losses, have unlimited liability o Personal earnings received from the partnerships are subject to personal income taxes Advantages:
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1) Funding 2) Losses are shared 3) Specialization Disadvantages: 1) Control is shared 2) Unlimited liability 3) Shared profits Corporations: (individual or group must adopt corporate charter and file it with the state) Separate legal entities Describes the name of the firm, stock issued, firm’s operations Must also establish bylaws Shareholders have limited liability Shareholders elect members of board of directors Advantages: 1) Limited liability 2) Access to funds 3) Transfer of ownership Disadvantages: 1) May be costly to establish 2) Financial disclosure 3) Agency problems 4) Tax disadvantage Stockholders/shareholders/Owners:
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Elect members of board of directors who are responsible for establishing general policies of the firm o Elect president and other key officers who run the business Earn return on investment in two ways o May receive dividends o Stock may increase in value Private vs. Publicly Held Corporations: PRIVATELY HELD: Ownership is restricted to small group of investors Stock is not traded publicly Examples: L.L. Bean, Polo, Ralph Lauren. PUBLICLY HELD: Larger corporations Stock is traded publicly Act of initially issuing stock: “going public” Double Taxation in Corporations: A situation in which two or more taxes may need to be paid for the same asset, financial transaction and/or income and arises due to overlap between different countries tax laws and jurisdictions.
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