Legal forms of business Sole Proprietorship business owned

Legal forms of business ■ Sole Proprietorship: business owned by one person – 72% of business = 5% of sales ■ Partnership: 2+ people that own & operate the business w/an agreement – General and Limited – 8% of business = 11% of sales ■ Corporation: a legal entity distinct from its owners – 20% of business = 84% of sales

Sole Proprietorship ■ Advantages ■ Disadvantages ■ Easy to set up **Own boss** Profit = income Incentive to operate efficiently Do not have to pay business income tax Easy to get out ■ Financial resources are limited Profit = income Responsible for all management **Subject to unlimited liability** Limited life ■ ■ ■ ■ ■

Partnership ■ ■ ■ Advantages Easy to organize Greater specialization **Better management Better access to financial resources than SP ■ No business income tax ■ Easier to attract workers ■ Disadvantages ■ Difficulty with partner(s) ■ Limited financial resources ■ **Unlimited liability** ■ Limited life

Stock Market Cartoon • 1. Why did the business owner sell stock in the first place? • 2. Companies must get approval through the? • 3. The ______ are elected by the stockholders. • 4. Why does an individual buy stock? • 5. In what year do you think this cartoon was created?

Corporations ■ Advantages ■ Easier to raise financial capital ■ sell stocks & bonds ■ **Limited liability** ■ Unlimited life ■ Hire managers ■ Easy to expand ■ Disadvantages ■ Expensive to get a charter (paperwork) ■ Shareholders have little say ■ **Double taxation** (dividends)

Stocks and Bonds STOCK = a share in the ownership of a corporation --common stock = anyone & voting rights --preferred or private stock = selected & nonvoting ■ BOND = an IOU ■ – You get your money back + interest