Management Chapter 4 Notes
Organizing Options (forms of business ownership)
Four different types of legal ownership businesses must choose from:
A business owned and operated by one person.
The business is considered an extension of yourself under a sole proprietorship (not
a separate legal entity).
Easy to form
Usually don’t have to register name (use your own name with no additions)
Low startup costs -> appealing to independent people
Tax benefits -> most businesses have losses in their early stages, their loses
can be deducted from their personal income sources other than the business
(same legal entity)
Unlimited liability – personal liability for all debts of the business
Lack of continuity – legally dissolves when the owner dies
Depends on resources of one person, whose managerial and financial
limitations may constrain the business
Hard to borrow money or expand
A form of organization established when two or more person’s agree to combine
their financial, managerial and technical abilities for the purpose of operating a
business for profit.
Two types of partnerships:
General partnerships – A type of partnership in which all partners are jointly liable
for the obligations of the business.
All persons are personally liable for the depts. And other liabilities of the business.
Limited partnerships – A type of partnership with at least one general partner
(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.
General partner – Partners who are actively involved in managing the firm and have
Limited partner – Partners who don’t participate actively in the business and whose
liability is limited to the amount they invested in the partnership. Advantages
Ability to grow by adding talent and money
Somewhat easier to borrow money than sole proprietorships
Can invite new partners to join by investing money
Simple to organize, with few legal requirements (all partnerships begin with
an agreement of some kind (strictly private document))
Unlimited liability (general partnership)
If a partner dies or pulls out, the partnership dissolves legally
Difficult to transfer ownership (need consent from other partners)
Provides little to no guidance in resolving conflicts between partners
A business that is a separate legal entity that is liable for its own debts and whose
owner’s liability is limited to their investment
Shareholders – Persons wh