Lesson 1 Flashcards
Is an enterprise or any lawful activity that provides
products or services desired by customers for
profit.
Business
forms of Business Organization:
Sole Proprietorship
Partnership
Corporation
Cooperative
Limited Liability Company
This popular form of business structure is the easiest to
set up. Have one owner who makes all of the business
decisions, and there is no distinction between the business and the owner.
SOLE PROPRIETORSHIP
ADVANTAGES OF SOLE:
Total control of the business
Simple Taxation
The owner can freely mix
personal assets with business
asset
Owner has all the profits for
himself or herself
Ease of formation
DISADVANTAGES OF SOLE:
Unlimited liability
Difficulty in raising additional
funds or capital
Owner’s bias
You can classify a business either general or
limited.
PARTNERSHIP
allow both partners to invest in
a business with 100%
responsibility for any business
debts.
They don’t require a formal
agreement.
GENERAL PARTNERSHIP
require owners to file
paperwork with the state and
compose formal agreements
that describe all of the
important details of the
partnership, such as who is
responsible for certain debts.
LIMITED PARTNERSHIP
ADVANTAGES OF PARTNERSHIP:
Easy to establish
Partners can combine expertise
Distributed workload
DISADVANTAGES OF PARTNERSHIP:
Possibility for disagreements
Difficulty in transferring
ownership
Full liability
is a business organization that acts as a unique and separate
entity from its shareholders. Pays its own taxes before distributing
profits or dividends to shareholders.
CORPORATION
three main forms of corporations:
C Corporation
S Corporation
LLC or Limited Liability Corporation
separate taxable entities,
subject to double taxation.
offer more flexibility but
potentially higher tax implications.
C corps
are pass-through entities, where profits and losses pass through to shareholders’ personal tax returns.
have ownership restrictions
S Corporation
A domestic corporation takes on its own liabilities and is held
responsible for its debts, and its
shareholder will only be held
liable to the level of their share
capital.
LLC or Limited Liability Corporation
ADVANTAGES OF CORPORATION:
Limited liability of stockholders
Virtually unlimited life
Ability to acquire additional
capital
Transferable ownership rights
Large pool of human capital
DISADVANTAGES OF CORPORATION:
Not easy to form
More expensive to form than
sole proprietorship and
partnership
Heavily regulated by
government
Double Taxation
autonomous and duly registered association of
persons, with a common bond of interest, who have
voluntarily joined together to achieve their social,
economic, and cultural needs and aspirations by making
equitable contributions to the capital required,
patronizing their products and services.
COOPERATIVE
ADVANTAGES OF COOPERATIVE:
there are equal voting rights for
members
this structure encourages
member contribution and
shared responsibility
liability for members is limited
there is no limit on the number
of members.
DISADVANTAGES OF COOPERATIVE:
Limited Capital
Inefficient Management
Lack of Secrecy
Excessive State Regulation
Internal Quarrels among
Members
A domestic corporation takes on its own
liabilities and is held responsible for its
debts, and its shareholder will only be held
liable to the level of their share capital.
LIMITED LIABILITY COMPANY
ADVANTAGES OF LLC:
No ownership restrictions
Ability to place membership
interests in a living trust
Ability to deduct losses
Tax flexibility
DISADVANTAGES OF LLC:
higher taxes
lack of flexibility
