EP Ch, 9: Types of Business Ownership and Law

Liability

a company’s financial debt or obligations that arise during the course of its business operations

Limited liability

a person’s financial liability is limited to a fixed sum most commonly the value of investment in a company

Unlimited liability

being personally liable for all business debts if the business can’t pay liabilites

Sole proprietorship

the simplest form of business ownership where a person owns a business and is personally responsible for it debts

features of a Sole proprietorship

• unlimited liability

• sole risk bearer

• easy formation and closure

• lack of business continuity

• no separate entity

• absolute control

partnership

a business or firm owned by two or more partners who share unlimited liability in the business

features of a partnership

• two or more persons

• sharing profits and losses

• unlimited liability

• joint ownership and control

• risk sharing

• specialized skills sharing

features of a corporation

a legal entity that is separate from its owners

• separate legal entity from its owners

• operates apart from owners

• it is charted by the state

• owners are stockholders or shareholders

corporation advantages

• unlimited number of shareholders

• limited liability

• access to outside capital or financing 

• business continuity

corporation disadvantages

• double taxation (profits are taxed twice, once as a corporation and again as an investor)

• high administrative expenses

• legally complex to start

shareholder

owners of a corporation. if you own a share of apple stock, technically you are an owner of the corporation.

S-corporation

a subchapter S is a form of corporation that meets certain requirements that allow income to pass directly to shareholders to avoid double taxation

LLC

corporate structure where members of the company cannot be held personally liable for the company’s debts

LLC advantages

• increased credibility

• limited liability

• avoids double taxation

• less restrictions on ownership

LLC disadvantages

• no automatic continuity

• governed by complex laws

• owners of an LLC cannot be employees

• when a partner dies, the LLC is dissolved

Non-profit

a special type of corporation that has been organized to meet specific tax-exempt purposes

Intellectual Property Laws

the rules for securing and enforcing legal rights to inventions, designs, and artistic works

Patent

a form of protection that provides exclusive rights for making, using or selling a concept or invention

Copyright

a legal right that grants the creator of an original work for its use and distribution

Trademark

a word, phrase or symbol that identifies and distinguishes goods from one party to another

Service mark

a word, phrase or symbol that identifies and distinguishes services from one party to another

contract

legally binding agreement

Capacity

minors in most states lack ________ to make a contract.