Ch3 Summary Entrepreneurship

1-Factors to Consider

 Tax considerations

 Liability exposure

 Start-up capital requirements

 Control

 Managerial ability

 Business goals

 Cost of formation

2-Forms of Ownership

 Sole Proprietorship

 Partnership

 Corporation

 S Corporation

 Limited Liability Company

 Joint Venture

3-Disadvantages of the Sole Proprietorship

 Unlimited personal liability

 Limited access to capital

 Limited skills and abilities

 Feelings of isolation
  Lack of continuity

4-Partnership

 An association of two or more people who co-own a business for the

purpose of making a profit
 Take the time to create a written partnership agreement!
5-Advantages of the Partnership

 Easy to establish

 Complementary skills of partners

 Division of profits

 Larger pool of capital

 Ability to attract limited partners

 Minimal government regulation

 Flexibility

 Taxation

6-Types of Partners

 General partners
 Limited partners
7-Disadvantages of the Partnership

 Unlimited liability of at least one partner

 Capital accumulation

 Difficulty in disposing of partnership interest

8-Disadvantages of the Partnership

 Lack of continuity

 Potential for personality and authority conflicts

 Partners bound by the law of agency

9-Limited Partnership

 A partnership composed of at least one general partner and one or more

limited partners
 The general partner in a limited partnership is treated exactly as in a general
partnership
10-The Corporation

 A separate legal entity from its owners

 Types of corporations:

o Domestic - a corporation doing business in the state in which it is

incorporated

o Foreign - a corporation chartered in one state and doing business in

another state

o Alien - a corporation formed in another country but doing business in

the United States

11-Types of corporations:

 Publicly held
 Closely held
12-Advantages of the Corporation

 Limited liability of stockholders

 Ability to attract capital

 Ability to continue indefinitely

 Transferable ownership

13-Disadvantages of the Corporation

 Cost and time of incorporating

 “Double taxation”

 Potential for diminished managerial incentives

  Legal requirements and regulatory “red tape”

 Potential loss of control by founder (s)

14-S Corporation

 Must be a U.S.-based corporation

 No nonresident alien shareholders

 Only one class of common stock

 No more than 100 shareholders (increased from 75)

 No more than 20% of corporate income from passive investment sources

15-Limited Liability Company (LLC)

 LLC combine many of benefits of the partnership and the corporations

forms.

 Resembles an S Corporation but is not subject to the same restrictions

 An LLC cannot have more than two of these four corporate characteristics:

• Limited liability

• Continuity of life

• Free transferability of interest

• Centralized management