BUSI 2401U Study Guide - Midterm Guide: Sole Proprietorship, Limited Partnership, General Partnership

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Firm"s primary goal: shareholder wealth maximization. Aligning shareholder/manager interests: incentives to align management and stockholder interests. Forms of business organization: sole proprietorship. A business owned by a single individual. Advantages: easiest to start, least regulated, single owner keeps all the profits, taxed once as personal income. Disadvantages: unlimited liability, limited to life of owner, equity capital limited to owner"s personal wealth, difficult to sell ownership interest, partnership. A business formed by two or more co owners. Advantages: two or more owners, more human and financial capital available, relatively easy to start, income taxed once as personal income. Disadvantages: unlimited liability, general partnership, limited partnership, partnership dissolves when one partner dies or wishes to sell, difficult to transfer ownership, possible disagreements between partners, corporation. A business created as a distinct legal entity owned by one or more individuals or entities. Advantages: limited liability, unlimited life, separation of ownership and management. Midterm review: transfer of ownership is easy, easier to raise capital.