BUSN 101 Study Guide - Spring 2018, Comprehensive Midterm Notes - Retained Earnings, Accounting, Financial Institution
12 Oct 2018
School
Department
Course
Professor
BUSN 101
MIDTERM EXAM
STUDY GUIDE
Fall 2018
How to Form a Business
● 3 P’s → Profit
○ Purpose, product, people
3 major forms of business ownership
● Sole proprietors: business owned/ managed by 1 person (most common)
● Partnerships: 2 or more people legally agree to become co-owners of a business
● Corporations: a legal entity w/ authority to act & have liability apart from its owners
Sole Proprietors: easiest kind of business to explore
● Advantages:
○ Being their own boss/control
○ Setting their own hours
○ Profits to yourself
○ Secrecy
○ Ease of closure
1. Ease of starting & ending the business
a. To start you just have to buy/lease the needed equipment/ get a permit or
license from govt
2. Pride of ownership
a. Can take all the credit for the good things that happen
3. Leaving a legacy
a. Leave business for future generations
4. Retention of co. profits
a. Owners keep the profit earned & benefit from the increasing value as the
business grows
5. No special taxes
a. Profits are taxed as the personal income of the owner & they pay the
normal income tax on that money (they do have to pay the self-
employment tax for SS & Medicare tho)
● Disadvantages:
○ Unlimited liability: risk of personal lost
■ You are responsible for all debts/ damages
○ Limited financial resources: funds are limited to what the one owner can gather
○ Management difficulties: it’s hard to hire qualified employees to run the
business cuz big companies offer more
○ Overwhelming time commitment
○ Few fringe benefits: no paid health insurance, no paid disability insurance, no
pension plan, no sick leave, no vacation pay
find more resources at oneclass.com
find more resources at oneclass.com
○ Limited growth: expansion is slow
○ Limited life span: if the owner dies then business no longer exists (unless it’s
taken over by someone else)
Partnerships: business w/ 2 or more owners
● General partnerships
○ All owners share in operating the business & in assuming liability for the
business’s debts
○ General partner: an owner (partner) who has unlimited liability & is active in
managing the firm
○ Uniform Partnership Act (UPA): the 3 key elements of any general partnership:
1. Common ownership
2. Shared profits/ losses
3. The right to participate in managing the operations of the business
● Limited partnerships
○ Limited partner: an owner who invests money in the business but does not have
any management responsibility or liability for losses beyond their investment
○ Limited liability: limited partners’ liability for the debts of the business is limited
to the amount they put into the company; their personal assets are not at risk
● Master limited partnership (MLP): looks like corporation→ acts like & trades on
stock exchanges like a corporation, but is taxed like a partnership (avoids the
corporate income tax)
○ Normally found in the oil & gas industry [Sunoco]
● Limited liability partnership (LLP): each partner is not responsible or liable for another
partner's misconduct or negligence (others losses won’t affect you)
● Advantages:
○ More financial resources
○ Governement regulation
○ Shared management and complementary skills & knowledge
○ Longest survival: being watched by a partner can help a business person become
more disciplined
○ No special taxes (all profits of partnerships are taxed as the personal income of
the owners)
○ Ease of organization
○ Availability of capital and credit
● Disadvantages:
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Sole proprietors: business owned/ managed by 1 person (most common) Partnerships: 2 or more people legally agree to become co-owners of a business. Corporations: a legal entity w/ authority to act & have liability apart from its owners. Sole proprietors: easiest kind of business to explore. You are responsible for all debts/ damages. Limited financial resources: funds are limited to what the one owner can gather. Management difficulties: it"s hard to hire qualified employees to run the business cuz big companies offer more. Few fringe benefits: no paid health insurance, no paid disability insurance, no pension plan, no sick leave, no vacation pay. Limited life span: if the owner dies then business no longer exists (unless it"s taken over by someone else) All owners share in operating the business & in assuming liability for the. General partner: an owner (partner) who has unlimited liability & is active in managing the firm.
