Forms of Business Ownership BAF3M

Something to Think About https://www.youtube.com/watch?v=jkIeOnt17zg

There are three forms of business ownership. They are: Sole Proprietorship Partnership Corporation

Interactive Description https://courses.elearningontario.ca/d2l/le/content/157299/viewContent/16078349/View?ou=157299

Sole Proprietorship An unincorporated business owned by a single individual. The law does not distinguish between the business and the owner.

Sole Proprietorship Advantages low start-up cost great freedom from regulation all profits to owner owner has complete control

Sole Proprietorship Disadvantages unlimited liability difficult to raise capital limited to owner’s knowledge lack of continuity profits taxed at personal rate

Partnership An unincorporated business owned by more than one individual. The law does not distinguish between the business and the owners.

Partnership Advantages ease of formation broader management skills limited regulations more capital resources

Partnership Disadvantages unlimited liability possible disagreements divided authority difficult to find partners partners liable for each other

Corporation A business which is an individual in the eyes of the law. The law views the business as a separate entity from the owner(s).

Public and Private Corporations Public Corporations are traded on the Stock Exchange. Citizens can purchase “shares” of a company. Private Corporations: can involve more than one shareholder (owner), but it is NOT traded on the stock exchange. It does not offer shares to the public. https://www.youtube.com/watch?v=U53nFJx-X20

Corporation Profits of the corporation are distributed to the shareholders by way of "dividends". The more shares one owns, the more dividends they will receive. example Shareholder receives: $1,000.00 Dividends: $1.00 / share Shareholder owns: 1000 shares

Corporation Advantages limited liability of shareholders (However, directors and officers can be liable in certain circumstances.) possible lower taxation rate can sue / be sued in the corporate name more prestige continuity of business

Corporation Disadvantages higher start-up costs and greater formalities requires annual maintenance from accountant and lawyer losses cannot offset personal income

Corporation Structure https://www.youtube.com/watch?v=3AIZglt38NA Executive: (ie. President, CEO, Treasurer, Secretary. Run the day to day operations of the business.) Directors: (Hire executive, guide mission, distribute profits between business & shareholders) Shareholders: (provide capital, elect directors, receive dividends)

1. In groups of 3-4 students, answer the following Chapter Review questions: #1, 8, 9, 10, and 11. 1. List the five main activities involved in accounting. 8. Identify three kinds of businesses besides a service business. 9. List the three forms of business ownership. 10. Give examples of a routine accounting activity and a periodic accounting activity. 11. Define the accounting cycle. Bonus Question: Explain the paradox involved in the answer to question #8.