Chapter 21: Forms of Business Organization – Flashcards
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Sole Proprietorship
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Unincorporated business owned by one person -Owner has total control -Owner has limited liability -Profits taxed directly as income (keeps all profits)
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Sole Proprietorship: + & -
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+Ease of creation ("start-up") +Owner has total management control +Owner retains profits -Personal liability -Funding limited to personal funds and loans
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Partnership
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Uniform Partnership Act Definition: "Association of two or more persons to carry on as co-owners a business for profit"
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Characteristics of a Partnership
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-Voluntary and consensual relationship -2 or more individuals, partnerships, corporations, etc. -Engaged in numerous business transactions over period of time -Partnerships share profits & management of business
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Interactions Between Partners and Third Parties
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-If partnership has liability, each partner has unlimited personal liability ("joint and several" liability) -----"Joint and several" liability - Third party can choose to sue partners separately or all partners jointly
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Limited Partnership (LP)
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Agreement between at least one general partner and at least one limited partner -Allows investor (limited partner) to share in profits of partnership -Limited partner's liability limited to amount he/she invests in business
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General Partner V. Limited Partner
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General: -Has all rights -Unlimited personal liability -Acts as an agent of partnership Limited: -No management/controlling rights -Liability limited to the amount of capital the partner has contributed to business -NOT and agent of the partnership
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Corporation
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State-sanctioned business with legal identity separate and apart from its owners (shareholders) -Owners' liability limited to amount of investment in corporation -"Double-taxation" -"S" Corporation can avoid double-taxation
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Corporation: + & -
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+Limited liability for shareholders +Ease of raising capital by issuing (selling) stock +Profits taxed as income to shareholders (not partners) -"Double-taxation" -Formalities required in establishing and maintaining corporate existence (paperwork)
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"S" Corporation
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Considered corporation, yet taxed like a partnership -Formed under federal law -No more than 100 shareholders
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Limited Liability Company (LLC)
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-Business organization with limited liability of a corporation yet taxed like partnership -Formed under state law -Owners of LLC ("members") pay personal income taxes on shares they report -No limitation on number of owners permitted in LLC
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Cooperative
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Organization formed by individuals to market products -members usually pool their resources for an advantage
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Joint Stock Company
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Partnership agreement in which company members hold transferable shares, while all company goods are held in names of partners -mix of corporation and partnership
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Business Trust
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Business organization governed by group of trustees, who operate trust for beneficiaries
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Syndicate
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Investment group that forms for purpose of financing a specific large project -Often for the purchase of large sports teams -Raise large amounts of money, in small amount of time
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Joint Venture
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Two or more persons/corporations created for specific business undertaking -ie) Nestle and Haagen-Dasz entered into a joint venture to create Ice Cream Partners, INC. -Joint ventures and partnerships legally the same
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Franchise
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Agreement between "franchisor" and "franchisee"
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Types of Franchises (3)
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"Chain-Style" Business Operation - Franchisor helps franchisee establish a business (McDonalds) Distributorship - Franchisor licenses franchisee to sell franchisor's product in specific area Manufacturing Arrangement - Franchisor provides franchisee with technical knowledge to manufacture franchisor's product
