Chapter 17 & 18 SLO's

What advantages and disadvantages are associated with the sole proprietorship form of business?

A major advantage of the sole proprietorship is that the proprietor receives all of the profits. Also, it is often easier and less costly to start a sole proprietorship than to start any other kind of business. This type of business organization entails more flexibility than does a partnership or a corporation. A sole proprietor pays only personal income taxes on profits. Sole proprietors can establish tax-exempt retirement accounts in the form of Keogh plans. The major disadvantage is that the proprietor bears the burden of any losses or liabilities incurred by the enterprise. The sole proprietorship also lacks continuity on the death of the proprietor. Another disadvantage is that the opportunity to raise capital is limited to personal funds and the funds of those who are willing to make loans.

What are the two options for managing a limited liability company (LLC)?

An LLC may be member-managed or manager-managed. If the articles of organization do not specify otherwise, an LLC is considered to be member-managed, with all members participating in management. In a manager-managed LLC, the members designate a group of persons, who may or may not be members, to manage the firm.

What advantages do limited liability companies (LLC's) offer to business persons that are not offered by sole proprietorships or general partnerships?

An important advantage of limited liability companies (LLCs) is that the liability of the members is limited to the amount of their investments. Another advantage of LLCs is the flexibility they offer in regard to taxation and management.

What advantages and disadvantages are associated with the general partnership form of business?

As with a sole proprietorship, one of the advantages of a general partnership is that it can be organized fairly easily and inexpensively. Additionally, the general partnership form of business offers important tax advantages. The partnership itself files only an informational tax return with the Internal Revenue Service. In other words, the firm itself pays no taxes. Rather, a partner's profit from the partnership (whether distributed or not) is "passed through" and taxed as individual income to the partner. A partnership also allow for greater capital contributions to the business than is possible in a sole proprietorship. Two or more persons can invest in the business, and lenders may be more willing to make loans to a partnership than to a sole proprietorship. The main disadvantage of the general partnership form of business is that the partners are subject to personal liability for partnership obligations. In the majority of states, under the Uniform Partnership Act (UPA), partners are jointly and severally (separately, or individually) liable for all partnership obligations, including contracts, torts, and breaches of trust. Joint and several liability means that a third party may sue all of the partners together (jointly) or one or more of the partners separately (severally) at his or her option. This is true even if the partner did not participate in, ratify, or known about whatever it was that gave rise to the cause of action and the liability based thereon.

What is the single most important difference between the business organizations discussed in Chapter 17, Sections 1 and 2, on the one hand, and the business organizations discussed in Chapter 18, on the other hand?

Sole proprietorships and traditional, or general, partnerships, are "general liability" forms of business organizations; whereas, the business organizations discussed in Chapter 18 are "limited liability" forms of business organizations.

What are the major forms of business organizations discussed in Sections 1 and 2 of Chapter 17?

The forms of business organizations discussed in Sections and 2 of Chapter 17 are the two most traditional major forms of business organizations used by entrepreneurs to form and structure "general liability" business enterprises. The first major form of a general liability business organization is a sole proprietorship. The second major form of a general liability business organization is a general partnership. Section 1 of Chapter 17 discusses the nature of a sole proprietorship and its advantages and disadvantages. Section 2 of Chapter 17 disc uses the nature of a general partnership and its advantages and disadvantages in relation to other business organizations. Traditionally, entrepreneurs have generally used two major forms to structure their business enterprises--the sole proprietorship, the partnership, including the limited partnership, and the corporation. In the last several years, two other business forms have come into widespread use—the limited liability company and the limited liability partnership.

What are the major forms of business organizations discussed in Chapter 18?

The major forms of business organizations discussed in Chapter 18 include: two other business forms have come into widespread use—(1) limited liability companies (LLCs); (2) limited liability partnerships (LLPs); (3) Limited Partnerships (LPs); and (4) Limited Liability Limited Partnerships (LLLPs). The one major characteristic all the foregoing forms of business organizations have in common is that they are all "limited liability" forms of business even though they are not a corporation form of business.