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Objectives You will be able to describe the characteristics of the legal forms of business You will be able to understand the advantages and disadvantages of the legal forms of business Legal forms of business Sole Proprietorship: business owned by one person – 72% of business = 5% of sales Partnership: two or more people that own & operate the business w/an agreement – General and limited – 8% of business = 11% of sales Corporation: a legal entity distinct from its owners – 20% of business = 84% of sales Sole Proprietorship Advantages Easy to set up Own boss Profit = income Incentive to operate efficiently Do not have to pay separate income tax Easy to get out Disadvantages Financial resources are limited Profit = income Responsible for all management **Subject to unlimited liability** Might not have enough personnel or inventory to satisfy customer Limited life Use pages 60-65 to do the same for Partnerships and Corporations Advantages and Disadvantages Partnership Advantages Disadvantages Easy to organize Greater specialization Better management Better access to financial resources than SP No business income tax Easier to attract workers Difficultly with partner(s) Limited financial resources **Unlimited liability** Limited life Problems if one partner leaves Corporations Advantages Easier to raise financial capital Issue stocks & bonds **Limited liability** Immortal—unlimited life Hire managers Easy to expand Disadvantages Expensive to get a charter Business owners sometimes avoid responsibility for questionable practices Share holders have little say **Double taxation** (dividends) Stocks and Bonds STOCK = a share in the ownership of a corporation --common stock = anyone and voting rights --preferred stock= selected, non-voting and receive dividend first BOND = an IOU – You get your money back + interest