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Lecture

Module 6 --- Forms of Business Ownership Concise notes taken from module 6 in the textbook, 20+ pages of reading reduced into 4 pages containing all relevant information presented in a way that is easy to study off of. Good luck studying :)


Department
Accounting & Financial Management
Course Code
AFM131
Professor
Robert Sproule

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Module 6
STARTING A SMALL BUSINESS
- Three forms of business ownership
o 1. Sole Proprietorship: one person owning and operating a business, without forming a corporation
Business owner + business = Single Entity
o 2. Partnership: a legal form of business with two or more parties
o 3. Corporation: a legal entity with authority to act and have liability separate from its owners
- Liability for a business includes: responsibility to pay all normal debts and to pay:
1. Because of court order
2. Because of a law
3. For performance under a contract
4. For damages to a person or property
Pros
Cons
Sole Proprietorship
Easy to start and end the business
All you have to do to start is to buy or lease
needed equipment, put up announcements to
say you are in business. To stop, you just
...stop. simple as that.
Being your own boss
One of the most common reasons for starting
a sole proprietorship.
Pride of Ownership
They deserve all credit for taking risks and
providing needed products.
Retention of company profit
You don’t need to share money with anyone
elseexcept government/taxes
No special taxes
Because profit is considered yours from the get
go, it is only taxed once, as your personal
income. Another advantage is they can claim
business losses against other earned income
decreasing personal taxes they need to pay
Less Regulation
Less regulated than corporations by
provincial/territorial governments, and
administration of proprietorship is less costly
than that of a corporation.
Unlimited Liability
(risk of personal losses)
The responsibility of business owners for all of
the debts of the business. (ie. You must pay
your debts, even if that means selling your car,
home, etc.)
Limited financial resources
Funds limited to how much money one person
(sole owner) can gather.
Management difficulties
It’s hard for sole proprietors to find and attract
good qualified employees because they cannot
compete with salary and benefits offered by
larger companies.
Overwhelming time commitment
They may set their own hours, but it is hard to
manage business, train people and have time
for everything else in life... they have no one to
share the burden with.
Few fringe benefits
You are your own boss, you often lose fringe
benefits you get from working for otherspaid
health insurance, paid disability insurance, sick
leave...
Limited growth
Growth is typically slow since it relies on its
owner for most of its creativity, business know
how and funding
Limited lifespan
If sole proprietor dies, retires or is
incapacitated, business no longer exists unless
sold or taken over by heirs.
Possibly pay higher taxes
If business’ income >$400,000 it will usually be
paying higher taxes than if it was
incorporated... tax rates are more
advantageous if business is incorporated.
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