Key:
RED Important
PURPLE S Corporation (are not subject to corporate tax)
BLUE C Corporation (pay double tax)
Objectives:
●Identify 3 forms of business organization
●Explain the advantages & disadvantages of these 3 forms
●Understand the links between stock price & intrinsic value
●Identify the conflict of interests & how to reduce them
3 Types of Business Organization:
●Proprietorship
👑
(highest %)
○Definition: An unincorporated business owned by one individual
○Examples: a local bakery store, salon, a freelance, YouTuber.
■Advantages:
●Easy & inexpensive to form
●Subject to a few government regulations
●Subject to lower income taxes than are corporations
■Disadvantages:
●Unlimited personal liability for the business’ debts
●Limited life of business
●Diicult to bring large amount of capital
●Partnership
○Definition: An unincorporated business owned by two or more individuals.
○Examples: a law firm, friends deciding to start a restaurant together.
■Advantages:
●Easy & inexpensive to form
●Subject to lower income taxes
■Disadvantages:
●Unlimited personal liability
●Diicult to bring large amounts of capital
●Corporate
👑
(highest $$)
○Definition: A legal entity created by a state, separate and distinct from its
owners & managers, having unlimited life, easy transferability of ownership
(stocks) and limited liability.
○Examples: GE, Amazon, Nintendo.
