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MGTA01H3 (583)
Chapter 4

MGTA03 Chapter 4 Notes.docx

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Department
Management (MGT)
Course
MGTA01H3
Professor
Chris Bovaird
Semester
Fall

Description
MGTA03 Introduction to Management Chapter 4—Understanding Legal Forms of Business Organizing Options (Forms of Business Ownership)  there are four options of legal ownership: sole proprietorship, partnership, corporation and the cooperative The Sole Proprietorship  sole proprietorship: a business owned and operated by one person  legally if a business if a sole proprietorship, then the business is considered to be an extension of the owner, and not a separate legal entity as in accounting  advantages to a sole proprietorship:  freedom—do not have to answer to anyone but yourself  easy to form—do not need to register your business name hence low start-up costs  tax benefits—since the business and proprietorship are legally one, the losses that business suffer in early stages can be from income the proprietor earned from personal sources rather than the business  disadvantages to a sole proprietorship:  unlimited liability—personal liability for all the debts and legal liabilities incurred by the business  lack of continuity—legally dissolves when the owner died  depends on the resources of one person whose managerial and financial limitations can constrain the business, obtaining start-up capital is difficult The Partnership  partnership is formed when two or more persons agree to combine their financial, managerial and technical abilities for the purpose of operating a business for profit  two types of partnerships: general (type in which all partners are jointly liable for the obligations of the business and share the profits of the business) and limited (in which there is at least one general partner who has unlimited liability and one or more limited partners who cannot participate in the day-to-day management of the business or they run the rick the losing their limited liability status)  general partners are partners who are activity involved in managing the firm and have unlimited liability  limited partners are partners who do not participate actively in the business and whose liability is limited to the amount they invested in the partnership  advantages of a partnership:  ability to grow by adding talent and money  simple to organize with few legal requirements (just partnership agreement) and can obtain loans more easily than in a sole proprietorship  not regarded as legal entity, so partners are taxed individually  disadvantages of a partnership:  unlimited liability for general partners  lack of continuity—if one partner dies or pulls out the partnership is legally dissolved even if the other partners agree to continue the business  difficulty of transferring ownership The Corporation  corporation is a separate legal entity that is liability for its own debts and whose owners’ liability is limited
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