Four Options of Legal Ownership of business: The sole proprietorship, the
!!!!partnership, the corporation, and the cooperative.
Sole Proprietorship: A business owned and operated by one person.
! ! Adv: Simplicity, freedom, easy to form, low start up costs, etc
! ! Disadv: Unlimited liability, lack of continuity, (legally dissolves when the
!!!owner dies), depends on resources *Financial and managerial
!!!skills* of one person, hard to borrow money.
Partnership: Formed when two or more persons operate a business for proﬁt.
!!Must Begin by agreement (oral, written, etc). The agreements
! ! usually state how disagreements will be resolved, who invested how
! ! much money, who reports to who, how much proﬁt is shared between
! ! partners, how partnership will be dissolved, how leftover assets be
! ! distributed among the partners.!!
!Two Types: General Partnership- All partners share the proﬁts of business and
! ! have say managing the business, and are liable for the debts and other
! ! liabilities of the partnership business.
!!!Limited partnerships- Two kinds of partners, one general partner
! ! and one or more limited partners. General partners run the business and
! ! have unlimited personal liability for its debts.Limited partners do not
! ! participate in manaing the business, only share proﬁts but is not
! ! personally liable for business. The most that they can lose is their
! ! investment. However, if a limited partner begins managing the business,
! ! they become a general partner and become liable for business.
!Adv: Ability to grow with talent and money. Easier to get loans. Simple to
! ! organize.
!Disadv: Unlimited liability for general partnerships. Lack of continuity (one dies
! ! or pulls out, partnership dissolves legally), Difﬁculty in transferring
! ! ownership. Partnership provides little or no guidance in resolving conﬂict
! ! between partners.
The Corporation: A business is a separate entity that is liable for its own debts
! ! and whose owners" liability is limited to their investment.
!-An artiﬁcial being, invisible, intangible and existing only in contemplation of the
!-Shareholders- investors who buy shares of a corporation, the real owners of the
! ! corporation. May share proﬁts in form of dividends although not required
! ! to pay dividends and can reinvest any proﬁts of the business.
!-Board of directors- Governing body of a corporation. Is responsible to ensure
! ! that the corporation is run in a way that its in the best interest of
! ! shareholders. (Chooses presidents and ofﬁcers, sets policy on paying
! ! dividends on ﬁnancing major spending, and on executive salaries and
! ! beneﬁts.
!-Inside directors- Employees of the company and have primary responsibility for
!!!the corporation.(Top managers)
Management Chapter 4 Notes