New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

BUS 101, Ch.4 Notes

by: Alicia Notetaker

BUS 101, Ch.4 Notes BUS 101

Alicia Notetaker

Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

Detailed notes from the chapter
introduction to business
clinton williams
Class Notes
business, BUS101, Introtobusiness
25 ?




Popular in introduction to business

Popular in Business

This 10 page Class Notes was uploaded by Alicia Notetaker on Friday September 9, 2016. The Class Notes belongs to BUS 101 at Tri-County Technical College taught by clinton williams in Fall 2016. Since its upload, it has received 9 views. For similar materials see introduction to business in Business at Tri-County Technical College.


Reviews for BUS 101, Ch.4 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 09/09/16
Ch. 4 Choosing a Form of Business Ownership 4-1 Sole Proprietorships Sole Proprietorships- A business that is owned (and usually operated) by one person.  Some are big but most are small. While other start small and grow big (Ex. Walmart)  Sole proprietorships make up 73% of the country’s business firms, but rank last in the total sales revenues.  Usually in retailing, service, and agriculture.  Advantages of Sole Proprietorships (2 main characteristics- simplicity & individual control) - Ease of Start-up and Closure: can usually be started up without an attorney. The firm can close just as easy as it opened - Pride of Ownership: should be proud of accomplishments because the owner solves the day to day problems, but in reverse is responsible if it shuts down. - Retention of all Profits: all profits become the owners, which pushes them to succeed. - No Special Taxes: taxed as the personal income of the owner. They must report profit or loss. They have to make quarterly tax payments to the federal government. - Flexibility of being your own boss: They can do anything that they want, when they want it  Disadvantages of Sole Proprietorships - Unlimited Liability: unlimited liability is the legal concept that holds a business owner personally responsible for all the debts of the business. No difference between the debt of the business and the debt of the proprietor. This causes a lot of SP’s to switch to corporate. - Lack of Continuity: death, illness, declared legally incompetent, retiring are all reasons why the business could end. - Lack of Money: banks/ lenders usually don’t want to give money because only one person is responsible for paying them back, the fact that if the owner dies there is no one to pay it back, and the bad success rate of sole proprietorships. Usually leads to a partnership - Limited Management Skills: In areas of managing a business that the sole proprietor is unable to do, they have to hire others therefore losing money. - Difficulty in Hiring Employees: An employee may see no room for advancement in the business, and/or they may switch to a larger firm in order to advance in their career. 4-2 Partnerships  Partnership- a voluntary association of two or more persons to act as co-workers of a business for profit.  Only represent 10% of American businesses  Often times started as a sole proprietorship and then turned into a partnership by joining to gather more capital.  Types of Partners (Partners are not always equal) - General Partners  General Partner- a person who assumes full or shared responsibility for operating a business.  Each partner can enter into contracts on behalf of the other partners  Unlimited liability for all debts  To withdrawal you must give notice to creditors, customers, and suppliers - Limited Partners  Limited Partner- a person who invests money into the business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership.  They receive a portion of the profit and tax benefits  Prospective partners in a limited partnership must file a formal declaration, that explains the details of the partnership  At least one general partner must be responsible for the debts of the limited partnership.  The Partnership Agreement - Both oral or written agreements are legally acceptable - Should state:  Who will make the final decisions  What each partner’s duties will be  The investment each partner will make  How much profit or loss each partner receives or is responsible for  What happens if a partner wants to dissolve the partnership or dies 4-3 Advantages & Disadvantages of Partnerships  Partnerships are the least popular form of business ownership  Advantages of a Partnership: - Ease of Start-up: Very easy to start up. You just have to register the name of the business and obtain any necessary licenses or permits. - Availability of Capital and Credit: More credit because they are able to combine between the two people. Banks are also more willing to give money and loans. Although they still hold back because they fear a disagreement or lack of continuity. - Personal Interest: They are more interested in succeeding through their business through their pride of ownership. This leads to better success. - Combined Business Skills and Knowledge: Partners often have complementary skills, so when one is weak in a skill, the other can perform it. They also solve problems with employees better because it is two different perspectives. - Retention of Profits: all profits belong to the owners - No Special Taxes: pays no income tax, but still has to file an annual information return (names and addresses of all partners involved in business). Each partner must report their profit  Disadvantages of Partnerships - Unlimited Liability: each general partner has limited liability. Each partner is legally and personally responsible for the debts, taxes, and actions of any other partner. Limited partnership requires at least one general partner and a limited liability partnership allows both people to be limited partners. - Management Disagreements: The success of a business can be ruined by a disagreement among partners. - Lack of Continuity: If one partner dies, the business is likely to go down. Although sometimes the remaining partners can buy the interest from his or her estate and keep it going. - Frozen Investment: When remaining investors are unwilling to buy the share of the business that belongs to the partner who retires, a partner must find someone outside the firm to buy their share. 4-4 Corporations  Corporation- an artificial person created by law, with most of the legal rights of a real person. (exists only on paper) These include:  Start and operate a business  Buy or sell property  Borrow money  Sue or be sued  Enter into binding contracts  Account for 79% of sales revenues  Corporate Ownership - Stock: the shares of ownership of a corporation. - Stockholders: a person who owns a corporation’s stock - Closed corporation: a corporation whose stock is owned by relatively few people and is not sold to the general public (not always a small company). - Open corporation: a corporation whose stock can be bought and sold by any individual (Ex. Apply, Microsoft)  Forming a Corporation  Where to Incorporate o A business can incorporate in any state that it chooses to. o The decision on where to incorporate is usually based on 2 factors. 1.) The cost of incorporating in one state compared with the cost in another state. 2.) The advantages and disadvantages of each states corporate laws and tax structure. o Domestic Corporation: a corporation in the state in which it is incorporated. o Foreign Corporation: a corporation in any state in which it does business except the one in which it was incorporated. o Alien Corporation: a corporation chartered by a foreign government and conducting business in the U.S.  The Corporate Charter o Once a home state has been chosen, the incorporator submits articles of incorporation, which consist of -The firms name and address -The incorporators’ names and addresses -The purpose of the corporation -The maximum amount of stock and type of stocks to be issued -The rights and privileges of stock holders -The length of time the corporation is to exist  Stockholders Rights o Two basic kinds of stock -Common Stock- stock owned by individuals or firms who may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others. -Preferred Stock- stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those on common-stock owners. o Dividend- a distribution of earnings to the stockholders of a corporation. o Since stockholders live all over the nation and can’t always attend the meeting, they vote by proxy: a legal form of listing issues to be decided at a stockholders’ meeting to transfer their voting rights to some other individual(s).  Organizational Meeting o Incorporators and original stockholders meet to adopt corporate bylaws  elect their 1 board of directors  directors will be elected or reelected at the annual meetings board members are directly responsible to the stockholders for the way they operate the firm.  Corporate Structure  Both the board of directors and the corporate officers are involved in management.  Board of Directors -board of directors: the top governing body of a corporation, the members of which are elected by the stockholders -directors who are elected from within the corporation are usually high up. (president, VP) -those elected from outside the corporation are experienced managers or entrepreneurs -Main job is to set company goals and develop general plans  Corporate Officers -corporate officers: the chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board of directors -help the board to make plans, carry out strategies established by the board, hire employees, and manage day to day business activities. 4-5 Advantages and Disadvantages of Corporations  Advantages of Corporations - Limited Liability: Limited Liability- the feature of corporate ownership that limits each owner’s financial liability to the amount of money that he or she has paid for the corporation’s stock. - Ease of Raising Capital: One of the most effective forms of raising capital. Not only can they borrow from lending institutions, but they can sell stock. - Ease of Transfer of Ownership: accessing a brokerage firm website or a telephone call to a stockbroker is all that is requires to put stock up for sale. - Perpetual Life: One death doesn’t cause it to go down. - Specialized Management: able to recruit better managers due to bigger salaries, benefits, and opportunity for advancement.  Disadvantages of Corporations - Difficulty and Expense of Formation: Large amounts of money and time go into starting a corporation. - Government Regulation and Increased Paperwork: Must meet standards, file many reports, and make sure activities are following law - Conflict within the Corporation: Pressure to increase sales revenue, reduce expenses, and increase profits lead to tension among managers and employees - Double Taxation: Must pay a tax on their profits and stockholders have to pay a personal income tax on profits received as dividends. - Lack of Secrecy: corporations must submit detailed reports to government agencies and to stockholders. 4-6 Special Types of Business Ownership  S Corporations -S corporations: a corporation that were taxed as if it were a partnership -the corporation’s income is taxed only as the personal income of its stockholders. - To qualify to be an S Corporation…. 1.) file the necessary paperwork to become a corporation. 2.) the corporation must complete form 2533 and submit to the IRS. 3.) Then they must meet the following criteria: -no more than 100 stockholders are allowed -stockholders must be individuals, or estates -can only be one class of outstanding stock -be a domestic corporation eligible to file for S status -stockholders must agree to form an S corp. - Avoid double taxation while retaining the corporations legal benefit of limited liability  Limited-Liability Companies - LLC- form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership 1.) LLC’s with at least 2 members are taxed like a partnership. LLC’s with one member are taxed like a sole proprietorship. Avoids double taxation. 2.) provides limited liability protection. This is the concept of personal-asset protection to small business owners 3.) Their organization provides more management flexibility and fewer restrictions when compared with corporations. -an LLC is not restricted to 100 stockholders like an S corporation -the owners of an LLC may file the required articles of organization in any state.  Not-for-Profit Corporations -not-for-profit corporation- a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit -Must meet Internal Revenue Service guidelines in order to obtain tax-exempt status. 4-7 Joint Ventures and Syndicates  Joint Ventures - Joint Venture: an argument 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. - Ex.) Many U.S companies are forming joint ventures with foreign firms in order to enter new markets around the globe.  Syndicates - Syndicate: a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital - Like a joint venture, the syndicate is dissolved as soon as its purpose has been accomplished. - Used most commonly to underwrite large insurance policies, loans, and investments. 4-8 Corporate Growth  Growth from Within - Growth from within, with careful planning, can have little change on a firm. The firm continues to do what they have always done, just on a bigger scale.  Growth Through Mergers and Acquisitions - Merger- the combining of two corporations or other business entities to form one business - Acquisition-large corporation’s purchases of other corporations. - Hostile takeover- a situation in which the management and board of directors of a firm targeted for acquisition disapprove of the merger. - Tender offer- an offer to purchase the stock of a firm targeted by acquisition at a price just high enough to tempt stockholders to sell their shares - Proxy fight- a technique used to gather enough stockholder votes to control a targeted company. - If the corporate raider is successful in taking over the targeted company, they usually replace management. The existing management may take actions like “poison pills”, “shark repellents”, or “porcupine provisions” to maintain control of the firm  Horizontal Mergers -a merger between firms that make and sell similar products or services in similar markets. -Ex.) American Airlines and US Airways -tends to reduce the # of firms in the industry, reducing competition  Vertical Mergers -a merger between firms that operate at different but related levels in the production and marketing of a product - one of the firms is either a supplier or a customer of the other -Ex.) Networking and data management  Conglomerate Mergers -merger takes place between firms in completely different industries. -Ex.) Financial Conglomerate and consumer goods


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Steve Martinelli UC Los Angeles

"There's no way I would have passed my Organic Chemistry class this semester without the notes and study guides I got from StudySoup."

Parker Thompson 500 Startups

"It's a great way for students to improve their educational experience and it seemed like a product that everybody wants, so all the people participating are winning."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.