Primary Forms Of Business Ownership Flashcards
Advantages of sole proprietorship
Simplicity Single layer of taxation Privacy Flexibility and control Fewer limitations on personal income Personal satisfaction
Sole Proprietorship
Business owned by a single person
Disadvantages of Sole Proprietorship
Financial Liability Demands on the owner Limited managerial perspective Resource limitations No employee benefits for the owner Finite life span
Unlimited liability
Legal condition under which any damages or debts incurred by a business are the owner’s personal responsibility
Partnership
Unincorporated company owned by two or more people
General partnership
Partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm’s financial obligations
Limited Partnership
Partnership in which one or more persons act as general partners who run the business and have the same unlimited liability as sole proprietors
Limited Liability
Legal condition in which the maximum amount each owner is liable for is equal to whatever amount each invested in the business
Master Limited Partnership (MLP)
Partnership that is allowed to raise money by selling units of ownership to the general public
Limited Liability Partnership (LLP)
Partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole
Advantages of Partnerships
Simplicity Single layer of taxation More resources Cost sharing Broader skill and experience base Longevity
Disadvantages of partnerships
Unlimited liability
Potential for conflict
Expansion, succession, & termination issues
Corporation
Legal entity, distinct from any individual persons, that has the power to own property and conduct business
Shareholders
Investors who purchase shares of stock in a corporation
Public corporation
Corporation in which stock is sold to anyone who has the means to buy it
Private corporation
Closely held corporation
Corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public
Advantages of corporations
Ability to raise capital
Liquidity
Longevity
Limited liability
Disadvantages of corporations
Cost & complexity Reporting requirements Managerial demands Possible loss of control Double taxation Short term orientation of the stock market
S corporation
Type of corporation that combines the capital raising options and limited liability of a corporation with the federal taxation advantages of a partnership
Limited Liability Company (LLC)
A structure that combines limited liability with the pass-through taxation benefits of a partnership; the number of shareholders is not restricted, nor is members’ participation in management
Benefit Corporation
A profit seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit
Subsidiary
Corporation primarily or wholly owned by another company
Parent company
Corporation that owns one or more subsidiaries
Holding company
Special type of parent company that owns other companies for investment reasons and usually exercises little operating control over those subsidiaries
