Download Slide 1 - Humble ISD

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
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Legal forms of business
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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
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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
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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
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Corporations
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Advantages

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Easier to raise
financial capital
Issue stocks & bonds
**Limited liability**
Immortal—unlimited
life
Hire managers
Easy to expand
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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