Chapter 6: Forms Of Business Ownership Flashcards
3 major forms of business ownership
1) sole proprietorship
2) partnerships
3) corporations
Sole proprietorship
A business owned and usually managed by one person
Partnership
A legal form of a business with two or more parties
Corporation
A legal entity with authority to act and have liability seperate from its owners
Like dons
Advantages of sole proprietorship
1) ease of starting and ending the business
2) being your own boss
3) pride of ownership
4) retention of company profit
5) NO SPECIAL TAX
6) less regulation
Disadvantages of sole proprietorship
1) UNLIMITED LIABILITY - risk of personal loss
2) limited financial resources
3) management difficulties
4) overwhelming time commitment
5) few fringe benefits
6) limited growth
7) limited lifespan
8) possibly pay higher taxes
Unlimited liability
The responsibility of business owners for all the debts of the business
General partnership
A partnership in which all owners share in operating the business and in assuming liability for the businesses debt
Limited partnership
A partnership with one or more general partners and one or more limited partners
General partner
An owner who has unlimited liability and is active in managing the firm
Limited partner
An 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 businesses owners for losses only up to the amount they invest
Limited liability partnership (LLP)
A partnership that limits partners risk of losing their personal assets to only their own acts and omissions and to the act and ommisions of people under their supervision
Partnership advantages
1) More financial resources
2) shares mangement and pooled knowledge and skills
3) LONGER SURVIVAL
4) shared risk
5) NO SPECIAL TAXES
6) less regulation
Disadvantages of partnerships
1) Unlimited liability
2) DIVISION OF PROFITS
3) disagreement among partners
4) difficulty of termination
5) possibly pay higher taxes
6) HARD TO SELL
Public Corporations
Has the right to issue shares to the public, so it’s shares may be listed on a stock exchange
Private corporation
Corporation usually controlled by a small number of shareholders and its shares are not listed on stock exchange
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 owenership from management
Big ones: EASY MONEY, LIMITED LIABILITY, SEPERATE LEGAL ENTITY
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 with shareholders and their board of directors
Franchise agreement
An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell its goods in a given territory
Advantages of franchises
1) management and marketing assistance
2) personal ownership
3) nationally recognized name
4) financial advice and assistance
5) lower failure rate
Disadvantages to franchises
1) large start up costs
2) shares profit
3) management regulation
4) coattail effects
5) restrictions on selling
6) fraudulent franchisors
Co-operative
An organization owner and controlled by people- producers, consumers, or workers- with similar needs who pool their resources for mutual gain
How co-ops are different t
They have:
Different purpose
Different control structure
Different allocation of profit
Articles of incorporation
Legal authorization from the federal / provincial government for a company to use a corporate format
4 types of business ownership (I know, it’s 4 not 3, but the textbook said 3, the teacher said 4, fuck me)
Sole proprietorship
Co-op
Partnership
Corporation
Corporation pyramid / management sructure
Stock Holders/ Owners Board of directors Officers Managers Employees
