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Study Guide 515

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Submitted By msfrazier3
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Study Notes for Exam
Ch 1. Advantages and disadvantages of the different forms of organization. The difference between partnerships and corporations. Also read about agency conflicts.

Forms of business
Proprietorship
Advantages * it is easily and inexpensively formed * it is subject to few government regulations, and * its income is not subject to corporate taxation but is taxed as part of the proprietor’s personal income.
Disadvantages
* it may be difficult for a proprietorship to obtain the capital needed for growth * the proprie- tor has unlimited personal liability for the business’s debts, which can result in losses that exceed the money invested in the company (creditors may even be able to seize a proprietor’s house or other personal property!); and * the life of a proprietorship is limited to the life of its founder

Partnership-two or more ppl conduct a non-corporate business for profit.
Advantages
* general partners have unlimited liability * option of limited liability – one general partner and others are limited partners * one person is liable for the debts of the partnership

Disadvantages * limited partners typically have no control—it rests solely with the general partners—and their returns are likewise limited * partners can potentially lose all of their personal assets because all partners are liable for the business debts

Corporation-a legal entity under state law and is separate from mangers and owners.

Advantages * unlimited life—a corporation can continue after its original owners and managers are deceased; * easy transferability of ownership interest—ownership interests are divided into shares of stock, which can be transferred far more easily than can proprietorship or partnership interests; and * limited liability—losses are limited to the actual funds invested.

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