Class Notes (836,128)
United States (324,350)
Economics (157)
ECON 0110 (84)
Lecture

Section 7 Notes.doc

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Department
Economics
Course
ECON 0110
Professor
K E N K E L
Semester
Spring

Description
SECTION 7: THREE LEGAL FORMS OF BUSINESS ENTERPRISE THE THREE MOST IMPORTANT LEGAL FORMS OF BUSINESS ENTERPRISE SOLE PROPRIETOR PARTNERSHIP CORPORATION SHARE OF STOCK Represents partial ownership of a corporation Ownership of X% of the stock = Ownership of X% of the corporation Gives you X% of the corporation’s dividends DIFFERENT TREATMENT WITH RESPECT TO LIABILITY Who is liable (or responsible) for paying outstanding debts? TAXATION How are the profits taxed by the government? UNLIMITED LIABILITY Sole proprietors and partners The business owners are personally liable for all business debts Each partner is liable for all debts BIG DISADVANTAGE Example: If your business borrowed, say, $1 million from a lender and your business could not repay the debt, the lender could sue you and take ownership of everything you own (checking accounts, savings, stock ownership, certificates of deposit, house, car, etc.) LIMITED LIABILITY Applies to corporate stockholders You sue a corporation as a separate legal entity. Personal assets of stockholders are safe. Limits risk Example: Suppose you own stock in United Airlines. Suppose United Airlines borrowed $1 billion to buy some new planes. Suppose United Airlines was unable to repay the lenders. The lenders would sue United Airlines as a separate legal entity. The lenders could take possession of all the assets owned by United Airlines, but the lenders could NOT sue you individually as a part owner and the lenders could NOT take possession of any of your individual assets. BIG ADVANTAGE FOR CORPORATIONS TAXATION OF PROFITS SOLE PROPRIETOR AND PA
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