Business and Personal Finance © 2007Chapter 16:
Types of Business OwnershipChapter Summaries- Sole proprietorships are easy to set up; the owner retains control and profits; there are few government regulations; and profits are taxed once as personal income. The disadvantages include limited capital, unlimited liability, limited human resources, and a limited life.
- In partnerships, general partners have decision-making authority, are active in the business, and have unlimited liability. Limited partners rarely take an active role in the business, and their liability is limited to their investment.
- Partnerships are easy to set up and bring more skills, knowledge, and capital to the business. Partners retain control, and profits are taxed once as personal income. Disadvantages include unlimited liability; potential disagreements; shared profits; and limited life of the business.
- Closely held corporations have shares held by a few individuals, and shares are not traded in stock markets. Publicly held corporations sell shares on stock exchanges, and shares are held by many individuals and institutions.
- To form a corporation, you must file articles of incorporation with the state in which you incorporate, and you must write corporate bylaws. The state issues a corporate charter.
- Corporations operate as legal entities separate from owners and continue no matter who owns them. Corporations issue stock; stockholders have limited liability. However, corporations are difficult and expensive to establish; decision making can be slow; and profits are taxed twice.
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