2. Objectives You will be able to describe the characteristics of the legal forms of business You will be able to describe the characteristics of the legal forms of business You will be able to understand the advantages and disadvantages of the legal forms of business You will be able to understand the advantages and disadvantages of the legal forms of business

3. Legal forms of business Sole Proprietorship: business owned by one person Sole Proprietorship: business owned by one person –72% of business = 5% of sales Partnership: two or more people that own & operate the business w/an agreement Partnership: two or more 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 Corporation: a legal entity distinct from its owners –20% of business = 84% of sales

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

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

6. Corporation Video (just watch)

7. Corporations Advantages Advantages Easier to raise financial capital Easier to raise financial capital Issue stocks & bonds Issue stocks & bonds **Limited liability** **Limited liability** Unlimited life Unlimited life Hire managers Hire managers Easy to expand Easy to expand Disadvantages Disadvantages Expensive to get a charter Expensive to get a charter Share holders have little say Share holders have little say **Double taxation** (dividends) **Double taxation** (dividends)

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