Ch 5 & 13 Flashcards
sole proprietorship
a business that is owned, and usually managed, by one person
partnership
a legal form of business with two or more owners
corporation
a legal entity with authority to act and have liability apart from its owners
unlimited liability
the responsibility of business owner for all of the debts of the business
advantages of sole proprietorships
1) ease of starting and ending the business
2) being your own boss
3) pride of ownership
4) leaving a legacy
5) retention of company profits
6) no special taxes
disadvantages of sole proprietorships
1) unlimited liability- risk of personal losses
2) limited financial resources
3) management difficulties
4) overwhelming time commitment
5) few fringe benefits
6) limited growth
7) limited life span
general partnership
all owners share in operating the business and in assuming liability for the business’ debts
limited partnership
one or more general partners and one or more limited partners
general partner
owner (partner) who has unlimited liability and is active in managing the firm
limited partner
owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment
limited liability
the responsibility of a biz’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability
master limited partnership (MLP)
a partnership that looks much like a corporation (in that it acts like a corp and is traded on a stock exchange) but is taxed like a partnership and thus avoids the corporate income tax
limited liability partnership (LLP)
partnership that limits partners’ risk of losing their personal assets to only their own acts and omissions and to the acts and omissions of people under their supervision
advantages of partnerships
1) more financial resources
2) shared management and pooled/complementary skills/knowledge
3) longer survival
4) no special taxes
disadvantages of partnerships
1) unlimited liability
2) division of profits
3) disagreements among partners
4) difficulty of termination
conventional (C) corporation
state-chartered legal entity with authority to act and have liability separate from its owners
advantages of corporations
1) limited liability
2) ability to raise more money for investment
3) size
4) perpetual life
5) ease of ownership change
6) ease of attracting talented employees
7) separation of ownership from management
disadvantages of corporations
1) initial cost
2) extensive paperwork
3) double taxation
4) two tax returns
5) size
6) difficulty of termination
7) possible conflict w/ stockholders and board of directors
S corp
a unique govnmt creation the looks like a corp but is taxed like a sole prop and partshp
limited liability company (LLC)
similar to an S corp but without the special eligibility requirements
requirements of an S corp
1) no more than 100 shareholders
2) have shareholders that are citizens or permanent US residents
3) have only one class of stock
4) derive no more than 25% of income from passive sources
advantages of LLC
1) limited liability
2) choice of taxation
3) flexible ownership rules
4) flexible distribution of profits and losses
5) operating flexibility
disadvantages of LLC
1) no stock
2) limited life span
3) fewer incentives
4) taxes
5) paperwork
merger
result of two firms forming one company
