Business Chapter 4

A partnership has several disadvantages over a sole proprietorship

1) Shared decision making can result in disagreements 2) Profits must be shared 3) Each partner is personally liable not only for his or her own actions but also for those of all partner- a principle called unlimited liability

Cooperative

Business owned & controlled by those who use its services. Individuals & firms who belong to the cooperative join together to market products, purchase supplies, and provide services for its members

Sole Proprietorship

Business owned by only one person -most common form of ownership -accounts for 72% of all U.S. businesses

Public Corporation

Corporation whose stock is available to the general public

Privately-held Corporation

Corporations that restricts the transferability of its stock

Dividends

Earnings distributed to stockholders

S-Coporation

Gives small business owners limited liability protection, but taxes company profits only once, when they are paid out as dividends. It can't have more than one hundred stockholders

Board of Directors

Group of people who are legally responsible for governing a corporation

Acquistion

Purchase of one company by another with no new company being formed

Stock

Share of ownership in a corporation

partnership( general partnership)

business owned jointly by two or more people - about 10% of U.S. businesses are partnerships

A corporation has several disadvantages over a sole proprietorship & partnership:

1) The goals of corporate managers, who don't necessarily own stock, & shareholders, who don't necessarily work for the company, can differ 2) It's costly to set up & subject to burdensome regulations & govt. oversight 3) It's subject to "double taxation." Corporations are taxed on their earnings. When these earnings are distributed as dividends, the shareholders pay taxes on these dividends.

Limited Partnership

Has a single general partner who runs the business and is responsible for its liabilities, plus any number of limited partners who have limited involvement in the business and whose losses are limited to the amount of their investment

Limited Liability

Legal condition under which an owner or investor can't lose more than the amount invested

Unlimited Liability

Legal condition under which an owner or investor is personally liable for all debts of the business

Corporation

Legal entity that is entirely separate from the parties who own it and that is responsible for its own debts

Shareholders

Owners of a corporation

A corporation has several advantages over a sole proprietorship & partnership:

1) An important advantage of incorporation is limited liability 2) Incorporation also makes it easier to access financing 3) Because the corporation is a separate legal entity, it exists beyond the lines of its owners 4) Corporations are generally able to attract skilled & talented employees

Advantages of a sole proprietorship

1) Easy & inexpensive to form; few govt. restrictions 2) Complete control over your business 3) Get all the profits earned by the business 4) Don't have to pay any special income taxes

Disadvantages of a sole proprietorship

1) Have to supply all the different talents needed to make the business a success 2) If you die, the business dissolves 3) Have to rely on your own resources for financing 4) If the company incurs a debt or suffers a catastrophe, you are personally liable( you have unlimited liability)

A partnership has several advantages over a sole proprietorship:

1) It's relatively inexpensive to set up & subject to few govt. regulations 2) Partners pay personal income taxes on their share of profits; the partnership doesn't pay any special taxes 3) It brings a diverse group of people together to share managerial responsibilities 4) Partners can agree legally to allow the partnership to survive if one or more partners die 5) It makes financing easier because the partnership can draw on resources from a number of partners

Some of the questions that you'd probably ask yourself in choosing the appropriate legal form for your business include the following:

1) What are you willing to do to set up & operate your business? 2) How much control do you want? 3) Do you want to share your profits with others? 4) Do you want to avoid special taxes on your business? 5) Do you have all the skills needed to run the business? 6) Should it be possible for the business to continue w/o? 7) What are your financing needs? 8) How much liability exposure are you willing to accept?

Hostile Takeover

An act of assuming control that is resisted by the targeted company's management and its board of directors.

Merger

Occurs when 2 companies combine to form a new company

Not-fot-Profit-Organization

Organization formed to serve some public purpose rather than for financial gain. It enjoys favorable tax treatment.

Limited Liability Company (LLC)

Similar to an S-Corporation; its members are not personally liable for company debts and its earnings are taxed only once, when they're paid out as dividends. But it has fewer rules & regulations than does an S-Corporation -ex. Can have any # of members