Chapter 4

Types of Partnerships

*GENERAL PARTNERSHIP *LIMITED PARTNERSHIP *ARTICLES OF PARTNERSHIP

Select the three items that are usually listed in the articles of partnership.

- Authority and responsibility of each partner - Contribution (money or assets) of each partner - How profits will be distributed

Stocks

- Shares of the corporation that may be bought or sold - Can also be gifted or inherited

private corporation

- a corporation whose stock anyone may sell, buy or trade. - no stock is sold to the public - not required to disclose financial information publicly - may become public via initial public offering

Advantages of Sole Proprietorship

- ease and cost of formation - secrecy - distribution and use of profits - Flexibility and control of the business - Not much government regulation - Taxation - Closing the business

Partnership

A form of business organization defined by the Uniform Partnership Act as "an association of two or more people who carry on as co-owners of a business for profit" - Least used form of business - Typically larger than sole proprietorships but smaller than corporations.

Corporation

A legal entity, created by the state*, whose assets and liabilities are separate from its owners* - Has many of the rights, duties, powers of a person +Can own and transfer property +Can enter into contracts +Can sue and be sued in court

Preferred stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

Which legal document sets forth the basic agreement between partners?

Articles of Partnership

_____ are legally liable for the mismanagement of the firm or for any misuse of funds.

Board members

Sole proprietorship

Business owned and operated by one individual - Most common form of business organizations in US - Typically employ few than 50 people - Comprise nearly three-quarters of all U.S businesses.

Advantages of Partnership

Ease of organization Availability of capital and credit Combined knowledge and skills Decision making Regulatory controls

Which of the following is a disadvantage of the partnership form of business?

Friction between general and limited partners

Limited Partnership

Has at least one

Sole proprietorship Partnership Corporation

Individual income is taxed. Individual owners' income is taxed. The business and shareholders are taxed.

General partnership

Involves a complete sharing in both the management and the liability of the business

Sole proprietorship Partnership Corporation S Corporation

One owner Two or more owners Any number of shareholders Up to 100 shareholders

How is taxation handled in partnerships?

Partners pay taxes at the income tax rate for individuals.

----- do not pay taxes when submitting the organization's tax return to the Internal Revenue Service; the tax return simply provides information about the profitability of the organization and the distribution of profits.

Partners, Partnerships, or partnerships

Biggest corporation in US

Sole proprietorships

Disadvantages of Partnership

Unlimited liability Business responsibility Life of the partnership Distribution of profits Limited sources of funds

Disadvantages of Sole Proprietorship

Unlimited liability Limited sources of funds Limited skills Lack of continuity Lack of qualified employees Taxation

Joint venture

a partnership established for a specific project or for a limited time

A _____ is/are elected by the stockholders to oversee the general operation of the corporation and set its long-range objectives.

board of directors

A business owned and controlled through pooled resources by the people who use it is a(n) ______.

cooperative

A legal document that the state issues to a company based on information the company provides in the articles of incorporation is called a ______.

corporate charter

A state chartered legal entity with authority to act and have liability separate from its owners is a ______.

corporation

quasi-public corporation

corporations owned and operated by the federal, state, or local government

S-corporation (co-ops)

formed by Congress, for use by small business owners, offering the best characteristics of both C corporation and partnership.

When the corporation pays a tax on its profits and individual stockholders each pay tax on dividends distributed by the corporation, it is called ______.

double taxation

horizontal meger

firms that make and sell similar products to the

One advantage of a partnership is that ______.

it is easy to create

Stockholders' liability for losses only up to the amount they invest is called ______ liability.

limited

When two firms join together to form one new company, it is called a(n)

merger

an acquisition

occurs when a company purchases another, generally buying most of its stock

A(n) ______ is owned by just one or a few people who are closely involved in managing the business.

private corporation

dividends

profits of a corporation that are distributed in the form of cash payments to stockholders

As an entity, cooperatives are not set up to make

profits or money

Initial Public Offering (IPO)

selling a corporation's stock on public markets for the first time

Corporations have all the rights and privileges listed below EXCEPT ______.

their owners have unlimited liability

Which of the following is TRUE of S corporations?

they are taxed like a partnership

In a sole proprietorship, any debts or damages incurred by the business that cannot be paid by the business are your personal debts and you must pay them. This disadvantage is known as ______.

unlimited liability