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ANTA02H3 (146)
Chapter 4

Chapter 4 Types of Organizations.docx

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Chris Bovaird

Forms of Business organization Entrepreneurs have three options available when starting a business: Sole Proprietorship, Partnership, and Corporation Sole Proprietorship Business owned by ONE person (Can have employees working for you) Advantages -- Makes all decisions -- Keeps all profits -- Independent decisions on where you want the company to go -- Easy to set up, no mandatory regulating requirements and accounting needs -- Cheap to set up: $60 - $70 if registered (If registered, your name is registered so no one can take it) $0 if not, does not need to be registered Management / ownership clear Disadvantages Limits to owner’s skills Limits to owner’s resources Hard to get finance (hard to get bank loans) Lack of continuity (The business dissolves when the owner dies) Personal liability - You are personally responsible to pay any bills, settle any law-suits, and pick up all the pieces… If things go wrong! (About the debts business, can be sued but only to what the business owns) Unlimited liability – Your “personal” responsibility is unlimited (Suing the owner, losing cars and house) Partnership (2 or more) General Partnerships – A type of partnership in which all partners are jointly liable for the obligations of the business. Have a say and part of the profit Advantages Two (or 3) heads better than one More resources (human and financial) More credibility (more than 1 owner, easier to get loans) More contacts (potential customers) Disadvantage Conflicts with the owners Lack of continuity when an owner dies Personal liability Unlimited liability Joint and several liabilities – each partner responsible for debts of partnership, even when incurred by another partner. (One person gets sued, whole company can get sued) An Agreement (document) between partners Normally includes: How much $$ each partner contributed What each partner must do How is the partnership dissolved How profits distributed How conflicts are resolved Limited Partnership Partnership with: Partners who take no part in management of business Limited Partners supply $$$ only Limited Partners have limited liability (Can lose only their investment) Corporations – requires legal entity, authorized to operate a business For businesses that want: larger number of owners, split between ownership / management limited liability for owners All corp
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