Choosing a form of Business ownership

1) Sole proprietorships account for over 72 percent of of U.S. business firms and are the most common type of ownership in retailing, the service industries, and agriculture. They are the easiest type of business to form.

2) A sole proprietorship is a business that is owned (and usually operated) by one person.

3) The two main characteristics of sole proprietorship are simplicity and individual control.

4) Advantages of sole proprietorship are ease of startup and closure, pride of ownership, retention of all profits, flexibility of being your own boss, and income taxed as personal income.

5) Disadvantages of sole proprietorship are unlimited liability, loss of continuity if the owner dies or legally incompetent, limited ability to borrow money, limited management skills, and difficulty in hiring employees.

6) Unlimited liability is a legal concept that holds a business owner personally responsible for all the debts of the organization (the owner's personal property, savings and other assets can be seized and sold to pay the business creditors).

7) Partnerships accounts for about 8 percent of business firms.

8) A partnership is a voluntary association of two or more persons to act as co-owners of a business for profit.

9) There are two types of partnerships: general and limited. All partners in a general partnership have unlimited liability. In a limited partnership, the general partner(s) has unlimited liability and assume full responsibility for operating the business. Limited partners contribute capital to a business, but have no management responsibility or liability for losses beyond the amount he or she has invested in the partnership (limited liability).

10) A master limited partnership (not common) is a business partnership that is owned and managed like a corporation, but often taxed like a partnership (and sole proprietorship).

11) Both oral and written partnerships are legal.

12) A written partnership is obviously best, since the articles of partnership spell out the terms of the partnership agreement. This way there can be no intentional or unintentional lapse of partner's memories.

 14) Disadvantages of partnerships include: unlimited liability of general partners, management disagreements, Lack of continuity if one partner dies, difficult to dissolve, and any partners commitments are binding on all partners.

15) A corporation is an artificial person created by law with most of the legal rights of a real person, including the right to start and operate a business, to buy and sell property, to borrow money, to sue or be sued, and to enter into binding contracts (called a regular or C-corporation).

16) The owners of a corporation are the stockholders.

17) Stock are the shares of ownership of the corporation.

18) A business can incorporate in any state that it chooses.

17) The state of Delaware offers the lowest organization costs for a corporation.

18) The people who start a corporation are called incorporators.

19) Corporations may have common and/or preferred stockholders.

20) Preferred stockers are paid dividends before common stockers.

21) A technique used to gather enough stockholder votes to control a targeted company is referred to as a proxy fight.

22) There are open and closed corporations.

23) An open corporation is a corporation whose stock can be bought and sold by any individual.

24) A closed corporation is a corporation whose stock is owned by relatively few people and is not sold to the general public.

25) Four steps are involved in forming a corporation: 1) hire or consult an attorney, 2) decide where to incorporate, 3) submit articles of incorporation to secretary of state to form a charter, and 4) Consider stockholder rights and the importance of the organizational meeting.

26) Two factors to consider when forming a corporation is the cost of incorporating in one state verses other states, and the advantages and disadvantages of each states corporate laws and tax structures. In reality, most corporations are formed in the state where they will be doing the most business.

27) Ease of raising capital is a characteristic of corporations.

28) Common stock are owned by individuals or firms who may vote of corporate matters but whose claims on profit and assets are subordinate to claims of others.

29) Preferred stock are owned by individuals or firms who usually do not have voting rights but whose claim on dividends are paid before those of common stockholders.

30) A dividend is a distribution of earnings to the stockholders of the corporation.

31) Stockholders may vote by proxy. A proxy is a legal form listing issues to be decided at a stockholders meeting and enabling stockholders to transfer their voting rights to some other individual or individuals.

32) A domestic corporation is a corporation in a state where it is incorporated.

33) A foreign corporation is a corporation in any state in which it does business except the one in which it is incorporated.

34) A board of directors is the top governing body of a corporation, the members of which are elected by the stockholders.

35) Corporate officers are appointed by the board of directors and include the chairman of the board, president, vice presidents, corporate treasurer, and any other top executive.

36) Advantages of a corporation include: limited liability, ease of raising capital, ease of transfer of ownership, perpetual life, and specialized management.

37) Disadvantages of corporations include: difficulty and expense of formation, government regulation and paperwork required, conflict within the organization, double taxation (corporate taxes and tax on stockholder dividends), lack of operations secrecy due to the detailed reports required by the government.

38) Corporations are taxed by federal corporate taxes and state corporate taxes except for the states of Nevada, Washington, and Wyoming which has no state corporate tax.

39) Special types of corporations include: S-corporations, limited-liability companies, and not-for-profit corporations.

40) An S-corporation is a corporation that is taxed as though it were a partnership or sole proprietorship. It must meet special criteria. No more than 100 stockholders which must be individuals, estates, or exempt organizations; can have only one class of stock; must be a domestic corporation, can be no nonresident-alien stockholders, and all stockholders must agree to form the s-corporation, and other criteria.

41) A limited-liability company (LLC) is a form of business ownership that provides limited liability protection and is taxed like a partnership. It is run by the owners or mangers who make all management decisions.

42) A not-for-profit corporations is organized to provide a social, religious, or other service rather than earn a profit.

43) There are three additional types of business organizations. They are cooperatives, joint ventures, and syndicates.

44) A cooperative is an association of individuals or firms whose purpose is to perform some business function for its members.

45) A joint venture is an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time. It is dissolved when its purpose has been accomplished.

46) A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital. It is dissolved when its purpose has been accomplished.

47) A merger is the purchase of one corporation by another.

48) A hostile takeover is a situation in which management and the board of directors of a firm targeted for acquisition disapproves of the merger.

49) A tender offer is an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares.

50) A proxy fight is a technique used to gather enough stockholder votes to control a targeted company