Textbook Notes (368,013)
Canada (161,562)
Commerce (1,690)
Rita Cossa (83)
Chapter 6

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Rita Cossa

Chapter 6- Forms of Business Ownership Types of ownership • Sole proprietorships o Business owned, and managed by one person • Partnerships o Two or more parties legally agree to become co-workers of a business • Corporations o Legal entity with authority to act and have liability separate from its owners Liability • Another word for debt • It is the responsibility of a business to pay all normal debts and to pay: 1) because of a court order; 2) because of a law; 3) for performances under a contract; 4) for damages to a person or property Advantages and Disadvantages of Sole proprietorship Advantages: - Setting your own hours - Ease of starting and ending the business - Being your own boss - Pride of ownership - Retention of company profit (not share profits with anyone else) - No special taxes necessary to pay apart from personal income - Less regulation Disadvantages: - Costs of inventory, supplies, insurance, advertising, rent, computers, utilities - Unlimited liability: any debts or damages incurred by the business are your debts and you must pay them through any mean - Limited financial resources: funds are only from sole proprietor - Management difficulties - Overwhelming time commitment: must work long hours when necessary to run business - Few fringe benefits: no paid health insurance, sick leave or vacation pay - Limited growth: expansion is slow - Limited lifespan: if owner dies, business no longer exists - Possibly pay higher taxes: if business is profitable, then you might need to pay higher taxes Advantages and Disadvantages of Partnership There are two types of partnerships. General partnerships are a partnership in which all owners share in operating the business and in assuming liability for the business debts. Then there is limited partnership which is with one or more general partners and one of more limited partners, they don’t have responsibility for debts of business beyond simply investing. Limited liability partnership limits partner’s risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision. If your partner does something wrong in the business, your house and car are not taken away Advantages: - More financial resources: more money and credit available through pooling of financial assets - Shared management and pooled/complementary skills and knowledge: provide each other with different skills and perspectives - Longer survival: due to discipline - Shared risk - No special taxes: all profits are taxed as personal incomes of owners and nothing more - Less regulation Disadvantages: - Unlimited liability: each partner is liable for the debts - Division of profits - Disagreement among partners - Difficulty of termination: the questions of who gets what after one person quits or leaves - Possibly pay higher taxes: may need to pay higher taxes is very profitable Advantages and Disadvantages of a Corporation A corporation is a federally or provincially chartered legal entity with authority to act and have liabilities separate from its owners. The company’s stockholders are not responsible for the debts of the company beyond investment. They are divided up into 2 classes: public and private. Public corporation has the right to issue stock to the public and a private corporation is not allowed to issue stocks to the public. Advantages: - Limited liability of owners - Ability to raise more money for investment: can sell stocks and bonds to get money - Size: can raise a lot of money and build modern factories and other things using latest equipment. They can take advantage of opportunities anywhere in the world - Perpetual life: death of owner does not terminate corporation - Ease of ownership change: you just need to sell stocks to someone to change the owners - Ease of attracting talented employees: by offering benefits - Separation of ownership from management: can raise money from different owners/shareholders without getting them involved in management. The owners/shareholders have some say in who runs the corporation but no control over the daily operations Disadvantages: - Initial cost: costs thousands of dollars to open up business as it involves the services of lawyers and accountants - Extensive paperwork: keeping financial records, minutes of meetings, etc
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