CHAPTER 4: BUSINESS OWNERSHIP (PARTNERSHIP: Voluntary association of two…
CHAPTER 4: BUSINESS OWNERSHIP
COMPANIES: Artificial person created by law with most of legal rights of a real person.
Specialized management: Recruit more skilled and knowledgeable employees. Opportunity to advance.
Perpetual life: Company independently exists from owners.
Ease of transfer of ownership: When shares are traded ownership also exchanged.
Ease of raising capital: Can sell shares and can borrow money. Lenders more willing to lend, because of limited liability
Limited liability: Creditors only have claim on the corporations assets and not the owner's personal assets.
Enter into binding contract
Sue and be sued
Buy and sell property
Start and operate a business.
PARTNERSHIP: Voluntary association of two (2-20) persons who act as co-owners of a business for profit. Often represents pooling of special skills and talents.
Unlimited liability: Each partner legally and personally responsible for the debts, taxes and actions of the other partner.
LIMITED LIABILITY PARTNERSHIP: Each partner has limited liability protection from legal action resulting from malpractice or negligence of the other partners.
Lack of continuity: Partnership is terminated when either one of the two partners cannot be part of partnership anymore.
Frozen investments: Easy to invest ina partnership, but difficult to get it out.
Ease of start-up: Legal requirements often only registering name and obtaining any necessary licenses or permits.
Availability of Credit and Capital: Partners can pool their funds together. Banks , suppliers and other lenders are more willing to lend to partnership, because partners share or split the risk or liability.
Personal Interest: Partners keep each other accountable.
Combined business skills and knowledge: Partners may have complimentary skills.
Retention of profits:
No special taxes:
TYPES OF PARTNERS:
MASTER LIMITED PARTNERSHIP: Owned and managed as a corporation, but taxed like a partnership.
Receive portion of profit and tax benefits.
Person who invests in the business, but has no management responsibility or liability for losses beyond his or her investment.
Active in day-to-day operations
Assumes unlimited responsibility
Each partner can enter into contracts on behalf of the other partner.
Assumes full or shared responsibility for operating business.
PARTNERSHIP AGREEMENT: Listing and explaining the terms of the partnership.
Who will make financial decisions.
Each partner's duties
Ho much each partner will invest
Each partners profit or loss.
How partnership can be dissolved
SOLE PROPRIETORSHIP: Business owned by one person, easiest to start, most common in retailing, service and agriculture.
ADVANTAGES: Advantages arise from simplicity and individual control.
Ease of start-up and closure. Cheapest and easiest way to start a business. No legal requirements except registering business name and any permits needed. Can be closed as easily as it was opened.
Pride of ownership: Owner takes credit for taking risks and solving day-to-day problems in business.
Retention of all profits: All profit becomes personal earnings of the owner. Attracks many entrepreneurs.
No special taxes: Profits taxed according to personal tax income of the owner. No special taxes.
Flexibility of being your own boss: Can make your own decisions about the business without waiting for anyone's approval of permission.
DISADVANTAGES: Stems from the fact that these businesses are owned by one person.
Difficulty in hiring employees: Potential employees may feel that there are limit opportunities of advancement or promotional opportunities.
Limited management skills: Sole proprietor has to fulfill many roles like manager, accountant, salesperson, but doe not necessarily have expertise in every area.
Lack of money: Banks, suppliers or other lenders are usually unwilling to lend to sole proprietors. This is because the sole proprietor is the only one that can be held liable to pay the money back and the lack of continuity.
Lack of continuity: Legally the sole proprietor is the business. Thus if something happens to the owner (death or illness) the business cease to exist.
Unlimited liability: Holds a business owner personally liable for all the debts of the business.