Unit 2 - Business Ownership

Sole Proprietorship-Definition

A business owned by one person with unlimited liability and total control

Partnership-Definition

A business owned or managed by a small group, often not more than two or three people, who become partners and share the risk and reward.

Corporation-Definition

A business owned by a number of people and operated under written permission of the state in which it is located

Shareholder

People who buy stock in a corporation, making them owners of the corporation

Unlimited Liability

Full responsibility for your company's debts

Limited Liability

Liability only extends to what is invested

Limited Partnership

A partnership that consists of two classes of partners: general partners and limited partners

Limited Liability Partnership

This ownership allows those who want to operate a business as a partnership to have the benefit of limited liability. Typically the partners must register with the state, pay a fee, have "limited" in their partnership name and maintain appropriate professional liability insurance. This type of partnership also protects one partner from the negligence of the other parters

S Corporation

Corporation with no more than 35 shareholders that will escape most federal tax laws

Limited Partner

Do not make management decisions; their liability is limited to what they initially invested; and they can transfer ownership without dissolving the partnership

General Partner

Manages the day-to-day operations of the business and are personally responsible for the liability of the business

Limited Liability Company

A business structure designed to combine the tax advantage of a partnership with the operating advantages of a corporation

Franchise

A written contract granting permission to sell someone else's product in a prescribed manner, over a certain period of time and in a specific territory.

Franchisee

The person or group that receives the franchise

Franchisor

The parent company that grants the franchise

Cooperative

An organization owned and operated by its members for the purpose of saving money on the purchase of certain goods or services.

Non-Profit Organization

Type of business that focuses on providing a service rather than making a profit

Electronic Commerce

The buying and selling of goods via the internet

Web Trust

An AICPA provided assurance service that uses technology, consulting and audit skills to combat security and privacy issues when conducting shopping, banking or other transactions online

Advantages of a Sole Proprietorship

Easy to start

Owner makes all the decisions

Owner receives all profits

Disadvantages of a Sole Proprietorship

Capital is limited to what the owner can supply or borrow

Owner is liable for all debts

Long hours and Hard work

Life of the business depends on the owner

Advantages of a Partnership

Fairly easy to start the business

More sources of capital available

Partner may bring specialized skills or knowledge

Disadvantages of a Partnership

Unlimited Liability

More than one boss

Business ends if one of the owners dies or quits

Share the profit

Advantages of a Corportation

More sources of capital available

Specialized managerial skills available

Limited Liability; only lose what is invested

Ownership can easily be transferred

Disadvantages of a Corporation

Difficult to start

Owners don't control the day-to-day decisions

Business activities limited to those stated in the articles of incorporation