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Commerce Midterm Two.docx

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McMaster University
Rita Cossa

Commerce Midterm Two Friday March 9 67pm ITB 137 Ch 611Chapter 6 p142 Liability responsibility to pay all normal debts and to pay because of a court order or law for performance under a contract or payment of damages to a person or property in an accidentSole Proprietorship business owned and operated by one person without forming a corporationone owneroldest form of an organizationFigure more than 544800 businesses and they generate less than 3 of revenues Pros 1Ease of starting and ending the business no one to consultdisagree with about closing2 Being your own boss setting own hours and tasks 3 Pride of Ownershipcredit for your own work 4 Retention of Company Profit all profits are yours to keep 5 No special taxes profits are taxed as personal income Can also claim any business losses against earned income to decrease taxes 6 Less regulation regulated by provincialterritorial governments but are less regulated than corporations Administration is also less costly Cons 1 Unlimited Liability responsibility of business owners for all debts of the business 2 Limited financial resourceslimits to how much one person can raise 3 Management difficulties competitive salariesbenefits and good employees 4 Overwhelming time commitment no one to share time burden 5 Few fringe benefits may add up 30 of workers income 6 Limited growth relies on owner for creativity and drive 7 Limited lifespan business dies with owner unless sold or inherited 8 Possible higher taxes 400000 incomehigher taxes if not incorporatedPartnership legal form of business with two or more parties General Partnership all owners share in operating the business and in assuming liability for the businesss debts Limited partnership one or more general partners and one or more limited partnersGeneral partner has unlimited liability and is active in managing the firm Ever partnership must have one general partnerLimited partner invests capital but doesnt not have management responsibility or liability for lossesbeyond investment Limited Liability responsibility only for losses they invest eg Limited partners and share holders Pros 1 More financial resourceslimited partners for financial capital 2 Shared management and pooledcomplementary skills and knowledge more free time and different skills and perspectives 3 Longer survival partnerships are 4x more likely to succeed 1960 study 4 Shared risk 5 No special taxes taxed as personal income 6 Less regulation than corporation Cons 1 Unlimited liability liable for partners mistakes Personal assets are at risk 2 Division of profits 3 Disagreements among partners all terms of partnership should be written out and agreed on 4 Difficult to terminatewho gets what Partnership agreement legal document specifies the rights and responsibilities of each partner 5 Possibly par higher taxesCorporation a legal entity with authority to act and have liability separate from its ownersgenerate almost889of revenue company ownership is through stocks Public Corporation has right to issues shares to public Private Corporationshares are owned by fewer than 50 and are not available for general public salepay a lower rate of income tax than public corporations on first 400000provide limited liabilityanyone can incorporatemany are subsidiaries of multinationals or are familyowned can transfer ownership based on responsibility and inheritanceoften ranked by revenue the one significant financial measure they discloseNOTE you cannot change to a corporation status if you are trying to avoid paying sole proprietorship or partnership debts Pros 1 Limited liability only liable for investments 2 More money for investment sharesstocks bonds 3 Size large resources allow to diversify and buyhire the best 4 Perpetual life lives longer than owner 5 Ease of ownership change sell stock to change owners 6 Ease of drawing talented employees benefits and higher pay 7 Separation of ownership from management investors dont have to be involved with management Ownersstockholders elect board of directors who oversee major policy issue Cons 1 Extensive paperworkall expenses and deductions must be proven legitimate Detailed financial records and minutes from meetings
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