Chapter 8 - Sole Proprietorship

Sole proprietorship is owned and managed by:

a single individual

Sole proprietorship - percentage of U.S. businesses:

75%

Sole proprietorship - percentages of U.S. sales generated:

6%

List and explain the advantages of sole proprietorship.

1) ease of start up - just takes small amount of paperwork & legal expense
2) relatively few regulations - least regulated form of business organization
3) sole receiver of profit - owner keeps profit after income taxes
4) full control - owners run how they wish to
5) easy to discontinue - easily stop operations

List and explain the disadvantages of sole proprietorship.

1) unlimited person liability - liability is legally bound obligation to pay debts
2) limited access to resources - banks are unwilling to offer financing
3) lack of permanence - has a limited life

Find the term that does not belong - business license, certificate of occupancy, business organization, registration of business name

business organization - all of the others are required to start up a business

Find the term that does not belong - liability, health codes, zoning laws, dangerous chemical codes

liability - all others are enforced code businesses must follow

Find the term that does not belong - human capital, fringe benefits, physical capital, financial resources

fringe benefits - others are used to create goods

Typical examples of a general partnership:

1) doctors
2) lawyers
3) accountants

What limited partners do and do not do:

do: contribute money
do not: 1) actively manage business 2) have control of business 3) maintain liability

How limited liability partnerships compare with general partnerships:

they are the same except in an LLP are limited from personal liability in certain situations

Items often covered under articles of partnership:

1) partner's right and responsibilities
2) share profits or losses
3) new partnerships
4) duration of partnership
5) tax responsibilities

Capital and taxation advantages of partnerships:

- larger partnerships
- business doesn't have to pay taxes
- add partners
- employees

Liability disadvantages of partnerships:

- one partners actions = loss of firm
- all other partners suffer
- general personal conflicts

Reviewing Key Terms:
- only one partner is required to be a general partner in a...
- money and other valuables make up a person's or firm's...
- ownership interests and management responsibilities are legislated under the...

a. limited partnership
b. assets
c. Uniform Partnership Act

Supply the missing information: corporate structure

- stockholders (corporate owners) elect board
- board of directors - make major decisions, appoint officers
- corporate officers - oversee production, hire managers and employers
- manager and employees - various departments

Supply the missing information: start-up procedure

- certificate of incorporation

Supply the missing information: taxation

- pay taxes on their income

Supply the missing information: advantages for stockholders

- gain benefit of limited liability

Supply the missing information: advantages for businesses

- more growth.. raise money, purchase capital
- offer as many shares of stock as its charter allows
- selling bonds = raise money
- hire the best!
- continues even if owner dies

Supply the missing information: regulatory requirements

- hold annual meetings
- careful record of business transactions

Supply the missing information: possible combinations

- horizontal mergers
- vertical mergers
- conglomerates

Advantages of business franchises:

- management training and support
- standardized quality
- National Advertising program
- financial assistance
- centralized buying power

Disadvantages of business franchise:

- high franchising fees
- strict operating standards
- purchasing restrictions
- limited product line

Purpose of nonprofit organizations:

- operate like business, but for no profit
- provide service
- benefiting society

Examples of nonprofit organizations:

- public schools
- churches
- hospitals

Reviewing key terms:
- royalties
- trade association
- cooperative

royalties - share of earnings given as payment

trade association - nonprofit association that promotes the interests of a particular industry

cooperative - a business organization owned and operated by a group of individuals for their mutual benefit