Virtual Business Management Lesson 8- “Forms of Ownership-Capital”

Objective Students should show an understanding of the capital implications of choosing between a sole proprietorship, partnership, and corporation.

Collateral Collateral is the term for property or financial assets that you pledge against a loan

Capital Capital refers to money invested in a business.

Sole Proprietorship In general, compared to a sole proprietorship, a partnership with 5 partners will have access to more initial capital. In a sole proprietorship, you get 100% percentage of the earnings.

Partnership In a partnership, the business will often receive more capital as more partners contribute money. A main advantage of a partnership is access to more initial capital, better qualification for loans, and taxation only at the personal level.

Question: Question: If you start a partnership with 4 equal partners, your share of profits will be: 15% 20% 25% 33%

Question: Question: You contribute $20,000 to your partnership as do the other five partners. A bank gives you a loan matching all the contributed partner capital. What is your initial cash? $120,000 $240,000 $100,000 $200,000

Question Question: You join a partnership with 3 others. Your friend starts his own business. The earnings of your business will need to be what percent higher than his for you to take home the same amount. 100% 200% 300% 400%

Corporation: A corporation is a business that sells shares of the business (stock) to others in exchange for capital.

Question: Question: You own one third of the shares of a corporation that earned $600,000 after tax last year and paid out that entire amount as dividends. Your dividend tax rate is 15%. What was the amount of your dividend check? $15,000 $30,000 $45,000 $60,000