CHAPTER 1Supplements

TYPES OF BUSINESS ENTITIES Profit-making enterprises

Sole proprietorship:

Partnership:

Corporation:

SOLE PROPRIETORSHIP UNINCORPORATED business owned by

one person. Owner is manager Accounting: viewed as a separate entity Taxes: not separate from owner

PARTNERSHIP UNINCORPORATED business owned by TWO or

more persons knows as PARTNERS. Usually created by partnership agreement

(how to divide income and how to distribute net assets upon dissolution).

Legally, each partner in a general partnership is responsible for the debts of the partnership.

Accounting: Considered a separate entity Taxes: More complex, but flows to partners

tax returns. Other types of partnerships: Limited

partnerships

CORPORATIONS Incorporated under state regulations

and laws. Owners are called SHAREHOLDERS or

STOCKHOLDERS. Owners own shares of stock in the

company ACCOUNTING: Separate entity Taxes: Separate entity -- corporate tax Board of Directors -- Oversight

CORPORATIONS Dominant form of business in the US (by

size) Advantages of Corporate form:

Limited liability of ownersContinuity of lifeEase of transferring ownership (sale of

stock)Opportunity to raise large amounts of

capital (cash) from large numbers of people. Disadvantages of Corporate form:

Double taxation