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Entrepreneurs need to understand the advantages and disadvantages of various forms of business ownership
so they can choose the most appropriate form for their business.
Sole Proprietorship
sole proprietorship a business that is owned and operated by one person.
Note : The easiest and most popular form of business
ownership is the sole proprietorship.
Sole Proprietorship
• The owner of a sole proprietorship: receives the profitsincurs any lossesis liable for the debts of the business
Sole Proprietorship
• Advantages• Sole proprietorship is easy and inexpensive to
create. • The owner has complete authority over all business
activities.• It is the least regulated form of business ownership.• The business pays no taxes; income is taxed at
personal rate of owner.
Sole Proprietorship
Disadvantages:• The owner has unlimited liability. • Raising capital is more difficult.• The business is totally reliant on skills and abilities of
owner.• The death of owner dissolves the business unless
there is a will to the contrary.
Partnerships
• partnership a business with two or more owners who share the decisions, assets, liabilities, and profits.
• A partnership draws on skills, knowledge, and financial resources or more than one person.
General Versus Limited Partners
general partner: a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business.
limited partner a partner in a business whose liability is limited to his or her investment; a limited partner cannot be actively involved in managing the business
Note : Some partnerships include a limited partner.
Disadvantages
• There may be personality conflicts.• Partners can be held liable for each others’ actions.
What Is a Corporation?
• corporation a business that is registered by a state and operates apart from its owners; it issues shares of stock and lives on after the owners have sold their interest or passed away
shareholders an owner of shares of stock in a corporation
Disadvantages
expensive to set up
income is more heavily taxed
subject to double taxation on income
pays taxes on profits
stockholders pay taxes on dividends
Making the Decision
• Before deciding on a legal form, ask yourself key questions about:your skillscapitalexpenses
willingness to assume liabilitylevel of control wantedlength of time you expect