Chapter 5: How to Form a Business

Front

What is a sole proprietorship?

Back

A business owned, and usually managed, by one person.

Front

What is a partnership?

Back

A legal form of business with two or more owners.

Front

What is a corporation?

Back

A legal entity with authority to act and have liability separate from its owners.

Front

What percentage of businesses are corporations and what percentage of total receipts do they earn?

Back

Corporations make up 20% of businesses and earn 81% of total receipts.

Front

What percentage of businesses are sole proprietorships and what percentage of total receipts do they earn?

Back

Sole proprietorships are 72% of businesses but earn only 6% of receipts.

Front

List advantages of sole proprietorships.

Back

1. Ease of starting and ending the business. 2. Being your own boss. 3. Pride of ownership. 4. Leaving a legacy. 5. Retention of company profits. 6. No special taxes.

Front

List disadvantages of sole proprietorships.

Back

1. Unlimited liability. 2. Limited financial resources. 3. Management difficulties. 4. Overwhelming time commitment. 5. Few fringe benefits. 6. Limited growth. 7. Limited lifespan.

Front

What is a general partnership?

Back

A partnership in which all owners share in operating the business and in assuming liability for the business’s debts.

Front

What is a limited partnership?

Back

A partnership with one or more general partners and one or more limited partners.

Front

What is a general partner?

Back

An owner (partner) who has unlimited liability and is active in managing the firm.