Chapter 4 - Choosing a form of business
ownership
Sole proprietorship – 1 owner
Advantages
Easy to start up and to close down – no contracts or
agreements needed to start
Pride of ownership
Retention of all profits
No special taxes – all profit taxed as personal income
tax so no special state or federal tax like cooperation
Flexibility of being own boss
Disadvantages
Unlimited liability
Lack of continuity
Lack of money – hard to get a large loan if only 1
person as large risk for financial institution.
Limited management skills – only 1 person so not
combined strengths.
Difficulty of hiring employees – No promotion room if
owner takes all managerial positions
Partnership – 2 or more co-owners
Types of partners
General partner- involved in day-to-day business
operating activities. Can enter into contracts on
behalf of other partners. Unlimited liability for all
business’s debts
Limited Partner- Invests money but has no
managerial duties. Has limited liability as can only
loose his/her investment.
Master limited partnership – business that is
owned and managed like a corporation but taxed like
a partnership.
Advantages
Ease to start up – same as sole proprietorships
Availability of capital and credit – can pool own
capital and financial institutions are more likely to
lend money to them as it is less risk
Combined skills and knowledge
1
, Retention of profits – all profit is split between
partners
No special taxes – same as sole proprietor
Disadvantages
Unlimited liability
Management disagreements
Lack of continuity
Frozen investment – easy to invest in partnership but
hard to withdraw money
Corporations – artificial person created by law with most
rights of real person
1. Right to start and operate a business
2. Right to buy & sell property
3. Right to borrow money
4. Right to sue and be sued
5. Right to enter contracts
*Owned by shareholders
Closed corporation – stocks owned by few people and not
sold to public
Open corporation – Stock scan be bought and sold by any
individual
Common stocks – shareholders who don’t have voting
rights and dividends are paid out last
Preferred stocks – Shareholder who don’t have voting
rights but dividends are paid out first.
Board of directors – Top-governing body elected by
shareholders
Corporate office – chairman, president treasurer etc.
elected by directors.
Advantages
Limited liability
Ease of raising capital
Ease of transferring ownership
2
ownership
Sole proprietorship – 1 owner
Advantages
Easy to start up and to close down – no contracts or
agreements needed to start
Pride of ownership
Retention of all profits
No special taxes – all profit taxed as personal income
tax so no special state or federal tax like cooperation
Flexibility of being own boss
Disadvantages
Unlimited liability
Lack of continuity
Lack of money – hard to get a large loan if only 1
person as large risk for financial institution.
Limited management skills – only 1 person so not
combined strengths.
Difficulty of hiring employees – No promotion room if
owner takes all managerial positions
Partnership – 2 or more co-owners
Types of partners
General partner- involved in day-to-day business
operating activities. Can enter into contracts on
behalf of other partners. Unlimited liability for all
business’s debts
Limited Partner- Invests money but has no
managerial duties. Has limited liability as can only
loose his/her investment.
Master limited partnership – business that is
owned and managed like a corporation but taxed like
a partnership.
Advantages
Ease to start up – same as sole proprietorships
Availability of capital and credit – can pool own
capital and financial institutions are more likely to
lend money to them as it is less risk
Combined skills and knowledge
1
, Retention of profits – all profit is split between
partners
No special taxes – same as sole proprietor
Disadvantages
Unlimited liability
Management disagreements
Lack of continuity
Frozen investment – easy to invest in partnership but
hard to withdraw money
Corporations – artificial person created by law with most
rights of real person
1. Right to start and operate a business
2. Right to buy & sell property
3. Right to borrow money
4. Right to sue and be sued
5. Right to enter contracts
*Owned by shareholders
Closed corporation – stocks owned by few people and not
sold to public
Open corporation – Stock scan be bought and sold by any
individual
Common stocks – shareholders who don’t have voting
rights and dividends are paid out last
Preferred stocks – Shareholder who don’t have voting
rights but dividends are paid out first.
Board of directors – Top-governing body elected by
shareholders
Corporate office – chairman, president treasurer etc.
elected by directors.
Advantages
Limited liability
Ease of raising capital
Ease of transferring ownership
2
