Chapter 1 Finance 310

Chapter 1 Starting up a Proprietorship    Proprietorship-an unincorporated business owned by one individual Easy to start Three advantages o Easily and inexpensively formed o Few government regulations o Its income is not subject to public taxation  Three limitations o May be difficult for them to obtain capital needed for growth o Proprietor has unlimited personal liability o Life of a proprietorship is limited to the life of the founder   Used primarily for small businesses Only account for 13% of sales based on dollar even though 80% of all businesses are proprietorships

Partnership  Whenever two or more persons or entities associate to conduct a noncorporate business for profit  Partners can potentially lose all of their personal assets including assets not invested because each partner is liable for the partnerships debts  Limited partnership- wherein certain partners are designated general partners and others limited partners

o Limited partners can lose only the amount of their investment in the partnership while the general partners have unlimited liability o Common in real estate, oil, equipment leasing ventures and venture capital o Limited Liability Partnership (LLP) or Limited Liability Compnay (LLC) all partners enjoy limited liability with regard to the business’s liabilities and their potential losses are limited to their investment in the LLC Corporation  A legal entity created under state laws, and it is separate and distinct from its owners and managers  This separation gives it three advantages 1. Unlimited life 2. Easy transferablitiy 3. Limited liability   Easy to make money Two disadvantages

 Corporate earnings may be subject to double taxation  Setting up a corporation involves preparing a charter, writing a set of bylaws, and fulfilling the many required state and federal reports, which are more complex and time consuming than creating a proprietorship or partnership  Charter-

 Name of the proposed corporation 