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chapter 8

The document outlines three primary forms of small business ownership: Sole Proprietorship, Partnership, and Corporation, detailing their advantages and disadvantages. Sole Proprietorships are easy to form but come with unlimited liability, while Partnerships allow for pooled resources but also face similar liability issues. Corporations provide limited liability and easier expansion but are more complex and subject to double taxation.

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9 views

chapter 8

The document outlines three primary forms of small business ownership: Sole Proprietorship, Partnership, and Corporation, detailing their advantages and disadvantages. Sole Proprietorships are easy to form but come with unlimited liability, while Partnerships allow for pooled resources but also face similar liability issues. Corporations provide limited liability and easier expansion but are more complex and subject to double taxation.

Uploaded by

subukan.ko.din
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Forms of small business ownership

I. Sole Proprietorship

- is a business owned and operated by a single person. Majority of business are owned by sole proprietorships and
this is an indication of the popularity of this form.

Advantages:

1. Ease and cost of formation


2. Secrecy
3. Distribution and use of profits
4. Control of the business
5. Government regulation
6. Taxation and
7. Closing of the business

Disadvantages:

1. The possibility that the owner lacks ability and experience


2. The difficulty in attracting and keeping quality employees
3. The difficulty in raising additional capital
4. The limited life of the firm, and
5. The unlimited liability of the proprietor.

II. Partnership

- Is a legal association of two or more persons as co-owners of an unincorporated business. It is formed with the
purpose of eliminating some of the disadvantages of sole proprietorships while retaining some of their
advantages.

Advantages:

1. Ease of formation
2. Pooling of knowledge and skills
3. More sources of capital
4. Ability to attract and retain employees, and
5. Tax advantages

Disadvantages:

1. Unlimited liability
2. Limited life
3. Potential conflict between partners, and
4. Difficulty in dissolving the business

Types of Partnerships

1. General partnership – is an association of two or more persons, each with unlimited liability, and who are actively
involved in the business.
2. Limited partnership – is an arrangement in which the liability of one or more partners is limited to the amount of
assets they invested in the business.
Partnership Agreements – a document designed to prevent or at least minimize disagreements between partners. It usually
covers the following:

1. The purpose of the business


2. The terms of the partnership
3. The goals of the partners and the partnership
4. The financial contribution made by each partner at the beginning and during the lifetime of the business
5. The distribution of profits and losses
6. The withdrawal of contributed assets or capital by a partner
7. The management powers and work responsibilities of each partner
8. The provisions for admitting new partners.
9. The provisions for expelling a partner
10. The provisions for continuing the business in the events of a partner’s death, illness, disability or withdrawal
11. The provision for determining the value of a departing partner’s interest and method of payment of that interest
12. The methods of setting disputes through mediation or arbitration
13. The duration of the agreement and the terms of dissolution of the business.

III. Corporation

- Is a legally chartered enterprise with most of the legal rights of a person, including the right to conduct a
business, to own and sell property, to borrow money and to sue and be sued. It is owned by stock holders. They
are issued certificates of ownership called stocks.

Advantages:

1. Limited liability
2. Ease of expansion
3. Ease of transferring ownership
4. Relatively long life, and
5. Greater ability to hire specialized management.

Disadvantages:

1. More expensive and complicated to organize


2. Double taxation
3. More extensive government restrictions and reporting requirements, and
4. Employees lack personal identification and commitment.

A corporation may start operations only after receiving from the Securities and Exchange Commission a certificate of
incorporation.

Articles of incorporation contains:

1. Name of the corporation


2. Specific purpose or purposes
3. Principal office of the corporation
4. Term of existence of the corporation
5. Names, nationalities and residences of incorporators
6. Number of directors
7. Amount of authorized capital stock.

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