Download Business Structures: Sole Proprietorship, Partnership, and Corporation and more Quizzes Business Research Methods for Managers in PDF only on Docsity!
Sole Proprietorship
A business owned, and usually managed, by one person TERM 2
Partnership
DEFINITION 2 Two or more people legally agree to become co-owners of a business TERM 3
Corporation
DEFINITION 3 A legal entity with authority to act and have liability apart from its owners TERM 4
MAJOR BENEFITS of SOLE PROPRIETORSHIP
DEFINITION 4 Ease of starting and ending the business, Being your own boss, Pride of ownership, Leaving a legacy, Retention of company profit, No special taxes TERM 5
DISADVANTAGES of SOLE PROPRIETORSHIPS
DEFINITION 5 Unlimited Liability, Limited financial resources, Management difficulties, Overwhelming time commitment, Few fringe benefits, Limited growth, Limited life span
Unlimited Liability
Any debts or damages incurred by the business are your debts, even if it means selling your home, car or anything else TERM 7
Partnership
DEFINITION 7 Legal form of business with two or more owners TERM 8
General Partnership
DEFINITION 8 All owners share in operating the business and in assuming liability for the businesss debts TERM 9
Limited Partnership
DEFINITION 9 A partnership with one/more general partners and one/more limited partners (investors) TERM 10
Master Limited Partnership
DEFINITION 10 A partnership that looks much like a corporation but is taxed like a partnership and thus avoids the corporate income tax
DISADVANTAGES of PARTNERSHIPS
Unlimited liability Division of profits Difficult to terminate Disagreements among partners TERM 17
Conventional (C)
Corporation
DEFINITION 17 A state-chartered legal entity with authority to act and have liability separate from its owners (its stockholders) TERM 18
ADVANTAGES of CORPORATIONS
DEFINITION 18 Limited liability, Ability to raise more money for investment, Size, Perpetual life, Ease of ownership change, Ease of attracting talented employees, Separation of ownership from management TERM 19
DISADVANTAGES of CORPORATIONS
DEFINITION 19 Initial cost, Extensive paperwork, Double taxation, Two tax returns, Size. Difficulty of termination, Possible conflict with stockholders and board of directors TERM 20
S
Corporation
DEFINITION 20 A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. S corporations have shareholders, directors and employees, plus the benefit of limited liability. Profits are taxed only as the personal income of the shareholder
WHO CAN FORM S CORPORATIONS?
Qualifications: Have no more than 100 shareholders (originally 75), Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S., Have only one class of stock, Derive 25% of income from passive sources, If an S corporation loses its S status, it may not operate under it again for at least 5 years TERM 22
Limited Liability Company
(LLC)
DEFINITION 22 Similar to a S corporation but without the eligibility requirements TERM 23
Advantages of LLCs
DEFINITION 23 Limited liability Choice of taxation Flexible ownership rules Flexible distribution of profit and losses Operating flexibility TERM 24
DISADVANTAGES of LLCs
DEFINITION 24 No stock, therefore ownership is nontransferable Limited life span Fewer incentives Taxes Paperwork TERM 25
Franchise Agreement
DEFINITION 25 An arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory
