Chapter 9 Entrepreneurship

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 its liabilities

Sole Proprietor

The simplest form of business ownership is where a person owns a business and is personally responsible for its debts

Features of a Sole Proprietorship

• Unlimited liability

• Sole risk bearer

• Easy formation + closure

• Lack of business continuity

• No separate entity

• Absolute control

Partnership

A business or firm owned by 2 or more partners who share unlimited liability in the business

Features of a Partnership

• 2 or more people

• Joint ownership + control

• Sharing profits and losses

• Unlimited liability

• Risk sharing

• Specialized skills + sharing

Corporation

A legal entity that is separate from its owners

Features of a Corporation

• A separate legal entity from the owners

• Operates apart from owners

• Chartered by the state

• Owners = stock/shareholders

Corporation Advantages

• Unlimited # of shareholders

• Limited liability

• Access to outside capital + financing

• Business Continuity

Corporation Disadvantages

• Double taxation

  • Profits taxes as a corporation

  • Investor profits taxes

• High administrative expenses

• Legally complex to start

Shareholder

Owners of a corporation

Ex. Share of Apple = Owner

S-Corporation

A form of corporation that meets certain requirements that allow income to pass directly to shareholders to avoid double taxation

LLC Advantages

• Increased credibility

• Limited liability

• Avoids double taxation

• Less ownership restrictions

LLC Disadvantages

• No automatic continuity

• Governed by complex laws

• Owners cannot be employees

• When a partner dies, it is dissolved

LLC

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

Non-Profit Corporation

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

Intellectual Property Law

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

Ex. Big Mac + Happy Meal

Service Mark

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

Ex. ‘McDonald’s’ + Golden Arches

Capacity

The ability to enter into a legally binding agreement. Minors in most states lack the _____ to make a contract.

So, a minor who signs a contract can either honor the deal or void the contract