Easy to dissolve all decision making power all

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Unformatted text preview: shop • Many restaurants restaurants • Family farm Family farm • Carpet-cleaning Carpet-cleaning service service • Easy to form and to dissolve. Easy to dissolve. • All decision-making power All decision-making power resides with the sole proprietor. resides with the sole proprietor. • Profit is taxed only once. taxed only once. • Proprietor faces unlimited roprietor liability. liability. • Limited ability to raise imited ability funds funds for business expansion. business expansion. • Usually ends with retirement sually ends with retirement or or death of proprietor. proprietor. Partnership Partnership • Some medical Some offices offices • Some law offices Some offices • Some advertising Some agencies agencies • Benefits of specialization can Benefits be realized. realized. • Profit is taxed only once. only once. • Partners face unlimited liability liability (one partner can incur partner a debt and all partners are debt partners legally legally responsible for payment payment of the debt). debt). • Decision making can be Decision making can be complex and frustrating. complex and frustrating. Corporation Corporation • Hewlett-Packard Hewlett-Packard • Intel Intel • Walt Disney Walt • Owners (stockholders) have (stockholders) have limited limited liability. • Corporation continues if orporation continues if owners sell their shares of wners sell their shares of stock or die. stock or die. • Usually able to raise large sums of money. money. • Double taxation. Double taxation. • Corporations are complicated Corporations to set up. to set up. A summary of the advantages and disadvantages of the three types of business firms. 2. Corporations are complicated to set up. Corporations are more difficult to organize than sole proprietorships and partnerships, as we discuss next. Exhibit 7-2 summarizes the advantages and disadvantages of corporations and compares them with the advantages and disadvantages of proprietorships and partnerships. The Corporate Structure As a group, the stockholders are the most important persons in a corporation. They are its owners, and they elect the members of the board of directors. Voting for the board of directors is usually an annual event, with each stockholder having the right to cast as many votes as he or she has shares of stock. For example, a person with one share of stock has one vote, whereas a person with 10,000 shares of stock has 10,000 votes. The board of directors is an important decision-making body in a corporation that determines corporate policies and goals. It decides what products the corporation will produce and sell, what percentage of the profits of the firm will go to stockholders (as stock dividends), and what percentage will go for modernization and expansion. Also, the board of directors chooses the corporation’s top officers, including the president, one or more vice presidents, the secretary, and the treasurer. These officers carry out the day-to-day operations of th...
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