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Published byMaurice Bailey Modified over 8 years ago
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Forms of business ownership EASE OF STARTING YOUR OWN BUSINESS
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Basic forms of business ownership 1. Sole proprietorship You are the sole owner of the business Subject to all liability – the responsibility to pay all normal debts and also to pay A. because of a court order B. because of law C. due to contracts D. for damages to a person or property in an accident
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Sole Proprietor Unlimited liability – Whereby all of the debts of the business must be shouldered by you Advantages: Relatively easy to start a business Being your own boss Retain all company profits No special taxes; business losses can be claimed against income
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Sole Proprietor Disadvantages: Limited financial resources Management difficulties – you can’t be good at everything Overwhelming time commitment Few to no benefits Slow growth/expansion
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2. Partnerships Two or more people legally agreeing to be co-owners of a business A. General partnership – all owners share in operating the business and in assuming liability for the business B. Limited partnership – has one or more general partner and one or more limited partner General partner – has unlimited liability and is active in managing the firm Limited partner – invests money but does not have any management responsibilities or liability
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2. Partnerships Advantages: More financial resources Shared management and complementary skills Shared risk No special taxes Disadvantages: Unlimited liability Division of profits Difficult to end the business Disagreement amongst partners
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3. Corporations Incorporating is the act of creating a corporation These are federally or provincially chartered legal entities with authority to act and have liability separate from its owners Investors/shareholders are not liable to any debts beyond what they invested Allows many people/parties to share in ownership
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3. Corporations A. Public Corporations - Have the right to issue stocks to the public thus raising a lot of capital - Can be small or large companies
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3. Corporations B. Private corporation - Not allowed to issue stocks to the public - Regulations permit 50 or less shareholders - Good for when substantial capital is no required
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3. Corporations General advantages: - limited liability - ability to raise large sums of money for investment - perpetual life: if a shareholder dies, the corporation stays - ease of ownership change
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3. Corporations General disadvantages: - Initial cost: incorporating requires many lawyers, accountants, and other services - extensive paperwork: detailed financial records, meeting minutes and more are required - Double taxation: income the corporation makes is taxed. Then dividends given to shareholders is taxed again - Internal conflicts: disagreements between shareholders or board members
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Progress assessment - Questions 1. Would you be a sole proprietor? Or have a partnership? Give 3 reasons to support your decision 2. Why would unlimited liability be considered a major drawback of sole proprietorship? 3. What is the difference between a limited partner and a general partner? 4. What are the advantages and disadvantages of incorporating? 5. If you are a shareholder of a corporation, can you be sued for someone who was severely injured by their product? Why or why not?
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