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MGTA01H3 (583)
Chapter 4

Chapter 4 Notes

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

Description
Chapter 4 Understanding Legal Forms of Business Organization Notes Organizing Options (Forms of Business Ownership) The Sole Proprietorship N sole proprietorship : a business owned and operated by one person N legally, a business set up as a sole proprietorship is not considered a separate legal entity Advantages of a Sole Proprietorship N some advantages of a sole proprietorship include freedom, ease of formation, and tax benefits Disadvantages of a Sole Proprietorship N unlimited liability : personal liability for all debts of the business N disadvantages include lack of continuity: sole proprietorship dissolves when owner dies; sole proprietorship depends on resources of one person whose managerial and financial limitations may constrain the business; hard to borrow money The Partnership N partnership : a form of organization established when two or more persons agree to combine their financial, managerial, and technical abilities for the purpose of operating a business for profit N general partnerships : a type of partnership in which all partners are jointly liable for the obligations of the business N limited partnerships : a type of partnership in which at least one general partner (who has unlimited liability) and one or more limited partners; the limited partners cannot participate in the day-to-day management of the business or they risk the loss of their limited liability status N general partners : partners who are actively involved in the managing the firm and have unlimited liability N limited partners : partners who dont participate actively in the business and whose liability is limited to the amount they invested in the partnership Advantages of a Partnership N advantages include: ability to grow by adding talent and money; somewhat easier time borrowing funds; can also invite new partners to join by investing money; simple to organize, with few legal requirements; there is some sort of partnership agreement that is private document; not legal entities; partners are taxed as individuals Disadvantages of a Partnership N disadvantages include: unlimited liability; lack of continuity; transferring of ownership; provides little or no guidance in resolving conflict between the partners The Corporation N corporation : separate legal entity that is liability for its own debts and whose owners liability is limited to their investment N shareholders : persons who own shares in a corporation N board of directors : a group of individuals elec
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