Types of business ownership Flashcards
Entrepreneurship
what is the easiest and most popular form of business ownership
sole proprietorship
what is sole proprietorship
a business that is owned and operated by one person
what does the owner of the sole proprietorship do (3)
-receives the profits
-incurs any losses
-is liable for the debts of the business
in sole proprietorship what must the owner decide
how much liability protection he needs
what is liability protection
it is insurance against the debts and actions of a business
what are some advantages of sole proprietorship (4)
- its easy and inexpensive to create
- the owner has complete authority over all business activities
- it is the least regulated form of business ownership
-the business pays no taxes, income is taxed at the personal rate of the owner
what are some disadvantages of sole proprietorship (4)
- the owner has unlimited liability
- raising capital is more difficult
- the business is totally reliant on the skills and abilities of the owner
- the death of the owner dissolves the business unless there is a will to the contrary
what are the biggest disadvantages of sole proprietorship (2)
-financial
-the owner has unlimited liability
what is unlimited liability
its full responsibility for all debts and actions of a business
what is a partnership
its an unincorporated business with two or more owners who share the decisions, assets, liabilities and profits
what does the law require that all partnerships should at least have
one general partner
what is a general partner
is a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business
can all the partners in a partnership be general partners
yes
what are the types of partnership (2)
-general
-limited
what is a limited partner (2)
-its a partner in a business whose liability is limited to his or her investment
-a limited partner cannot be actively involved in the managing of the business
what are advantages of partnerships (3)
- are inexpensive to create
- general partners have complete control
- partners can share ideas
what are disadvantages of partnerships (3)
-it is difficult to dissolve one partners interest without dissolving the partnership
-there may be personality conflicts
-partners can be held liable for each others actions
what is a corporation (2)
- its a business that is registered by a state and operates apart from its owners
-it issues shares of stock and lives on after the owners have sold their interest/ passed away
in corporation the owners of the business are protected from what
liability for the actions of the company
what are the types of corporation (3)
-C-corporation
-Subchapter S Corporation
-Nonprofit corporation
what is the most common corporate
C-corporation
what is a C-corporation
an entity that pays taxes on earnings (its shareholders pay taxes as well)
in C-corporations the founders are generally what
the shareholders
what are shareholders
the owners of a corporation
what are the advantages of C-corporations (6)
-status
-limited liability
-ability to raise investment money
-perpetual existence
-employee benefits
-tax advantages
what is limited liability
its when you have partial responsibility of a corporate shareholder. He or she is responsible only up to the amount of his/her individual investment
what are disadvantages of C-corporations (5)
- expensive to set up
-income is more heavily taxed
-subject to double taxation on income
-pays taxes on profits
-stockholders taxed on dividends
what is a S-corporation
its a corporation taxed like a partnership
how can you avoid double taxation
with S-corporation
what are advantages of a S-corporation (2)
-profits are only taxed once at the shareholders personal tax rate
-the S-corporation is not a tax paying entity
What are disadvantages of S-corporations (4)
- they can have no more than 75 stockholders who must be U.S citizens
-can have only one class of stock
-often restaurants are s-corporations, If the business produces enough cash this form works however if the business shoes a large taxable profit but has not generated enough cash to cover the taxes, the owners must pay the taxes out of their personal earnings
what is a non profit (2)
its a legal entity that makes money for reasons other than the owners profit.
-it can make a profit, but the profit must remain within the company
a non-profit corporation must fall within what categories (4)
-religion
-charity
-public benefit
-mutual benefit
what is a limited liability company
its a company whose owners and managers have limited liability and some tax benefits, but which avoids some restrictions associated with subchapter S corporation
what are advantages of limited liability company (6)
- LLC is simpler to set up than a corporation
- LLC allows for the flexibility of a partnership structure
- LLC protects its owners with the limited liability of a corporation, its members are not liable for the company’s debts
- LLC is not subject to double taxation.
-It provides the pass-through tax advantages of partnership.
-Profits are taxed personally and shareholders are taxed only once
before you decide what business you want to do what should you ask yourself (6)
-your skills
-access to capital
-expenses
-willingness to assume liability
-level of control wanted
-length of time you expect to own the business
