Chapter 7 Flashcards
Advantages of a Sole Proprietorship
Easy and inexpensive to form
Single owner has complete control
Easy tax preparation
Disadvantages of a Sole Proprietorship
Unlimited liability for the owner
Can be difficult to raise capital
Owner takes on all the responsibilities of running the business
Advantages of a Partnership
Easy and inexpensive to form
Commitment and responsibilities are shared
Greater skill pool from partners to utilize
partnership incentives for employees
Disadvantages of a Partnership
Partners retain full liability for the business
Disagreements amongst partners can occur
Profits are shared amongst partners
Advantages of C Corporations
Limited Liability for shareholders of the debts and actions of the business
Able to generate capital through the sale of stocks
Profits outside of salary (dividends & bonuses) are taxed at a lower rate
More attractive to employees due to employee benefits and stock options
Disadvantages of C Corporations
Time consuming and costly to start
Taxed Twice: Once on profits and Once on dividends to shareholders
Additional paperwork and record-keeping by state and federal governments
Limited Liability Company Advantages
Members are protected from personal liability for the business
Members determine how profits are shared
less record keeping than a S-Corp.
Limited Liability Company Disadvantages
Possible Limited Life
Self-Employment Taxes
Entire Net Income of LLC is subject to taxes
Limited Liability Partnership Advantages
Single Taxation
Limited Liability
Flexibility
Limited Liability Partnership Disadvantages
Can prevent dissolution if a partner dies
limitation of formation
partner control
Benefit Corporation
A for-profit company that seeks to improve society through their operations
Must pay an annual fee
must follow government and transparency regulations
greater protection if the company is sold
More ethical and higher customer loyalty
Horizontal Merger
Two companies in the same industry combine
Vertical Merger
Two companies with a buyer-seller relation combine
Acquisition
One company buys out out or buys stock in another company to acquire ownership
