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Introduction to Business Chapter 6

sole proprietorship
business owned, and usually operated by a single individual.
sole proprietorship advantages
ease of formation, greater control and flexibility, no specific corporate records to keep or file, potential financial/tax benefit of combined business and personal finances
sole proprietorship disadvantages
unlimited liability, potential difficulty in borrowing money
type of business entity in which two or more entities (partners) share the ownership and the profits and losses of the business.
partnership advantages
more owners contribute capitol, greater ability to increase sales, market the business, and generate income, shared financial responsibility, partners likely willing to work very hard, utilize complementary skills, “two heads are better than one”
partnership disadvantages
need the “right” partner, must share control and profits, difference in opinion on company’s decision
partnership agreement
formalizes the relationship between business partners.
parts of a partnership agreement
capital contributions, responsibilities of each partner, decision- making process, shares of profits or losses, departure of partners, addition of partners.
general partnership
default arrangement for a partnership, simplest form.
Limited Partnership
two distinctions of partners. To encourage investors who do not want to loose more than they invested.
Limited Partners
are as involved as investors and are personally liable only up to the amount of their investment in the business and must not actively participate in any decisions of the business.
General Partners
full owners of the business, are responsible for all day-to-day business decisions, and remain liable for all debts and obligations of the business.
a specific form of business organization that is legally formed under state laws. Considered a separate entity from its owners, therefore has legal rights like an individual (can own property, assume liability, pay taxes, enter into contracts, and can sue and be sued)
corporate structure
shareholders, board of directors, corporate officers, chief executive officers, chief financial officer/ corporate security/ chief operating officer.
S Corporation
a regular corporation that has elected to be taxed under special section of the International Revenue Code called subchapter S. They do not pay corporate income taxes. They pay taxes through individual tax returns, only owe income tax based on their proportionate share of business profits they receive.
Limited Liability Company
distinct type of business that combines corporate advantages of limited liability with the tax advantages inherent in partnerships. Often used used by professional corporations formed by accountants, attorneys, doctors, and others.
Not- for- profit corporations
An incorporated business that does not seek a net profit. Receive limited liability when the become incorporated and are established as a separate legal entity. Can not be organized for any person’s private gain. tax exempt with 501(C)(3) status.
a business that is owned and governed by members who use its products and services, not by outside investors. Motivated to provide services to people with common interests and/or needs and are not motivated by profits.
two companies come together to form one company. Friendly and mutually agreed on
One company takes over another company/ buys out another company. The purchased company ceases to exist and it operates and trades under the buying company’s name.
affect achieved when two companies combine, the result is better than each company could achieve individually.
Horizontal Merger
two companies that share the same product lines and markets in direct competition with each other combine.
Vertical Merger
two companies that have a company/ customer relationship combine. (ex. ice cream shop merges with cone factory)
merger disadvantages
nearly two thirds don’t achieve greater market value, revenues and profits suffer because day-to-day activities are neglected while the companies are combined, corporate cultures may clash, communications may break down, new division of responsibilities can be vague, power struggle, employees may leave.

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