ECON 101 Chapter Notes - Chapter 8: Sole Proprietorship, Double Taxation
Types of Firms:
1. Sole proprietorship a firm owned by a single individual. Although most sole
proprietorships are small, some employ many workers and earn large profits.
2. Partnership a firm owned jointly by two or more - sometimes many - persons.
Most law and accounting firms are partnerships (not organized as a corporation).
Some of them can be quite large.
3. Corporation a legal form of business that provides owners with protection from
losing more than their investment should the business fail
Who is Liable? Limited and Unlimited Liability:
● sole proprietorships/partnerships have unlimited liability
○ no legal distinction b/tween personal assets of owners of the firm and the
assets of the firm
■ assets: anything of value owned by a person or a firm
● General incorporation laws allowed firms to more easily be organized as
corporations - the owners of a firm have limited liability -
○ a legal provision that shields owners of a corporation from losing more
than they have invested in the firm
● Advantages of each:
○ Sole proprietorship:
○ control by owner
○ no layers of management
2. Partnership:
● availability to share work
● ability to share risks
3. Corporation:
○ limited personal liability
○ greater ability to raise funds
● Disadvantages of each
○ Sole proprietorship:
○ unlimited personal liability
○ limited ability to raise funds
2. Partnership:
● unlimited personal liability
● limited ability to raise funds
3. Corporation:
● costly to organize
● possible double taxation of income
Corporations earn the majority of revenue and profits:
● 3/4 of firms are sole proprietorships
● firms earn majority of revenue
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Document Summary
Types of firms: sole proprietorship a firm owned by a single individual. Although most sole proprietorships are small, some employ many workers and earn large profits: partnership a firm owned jointly by two or more - sometimes many - persons. Most law and accounting firms are partnerships (not organized as a corporation). Some of them can be quite large: corporation a legal form of business that provides owners with protection from losing more than their investment should the business fail. No legal distinction b/tween personal assets of owners of the firm and the assets of the firm. Assets: anything of value owned by a person or a firm. General incorporation laws allowed firms to more easily be organized as corporations - the owners of a firm have limited liability - A legal provision that shields owners of a corporation from losing more than they have invested in the firm. Unlimited personal liability limited ability to raise funds.
