Business 1000 - Chapters 5,7,10

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Chapter 5 Summary (See related pages) 1. The major forms of business ownership are sole proprietorships, partnerships, and corporations. • What are the advantages and disadvantages of sole proprietorships? The advantages of sole proprietorships include ease of starting and ending, being your own boss, pride of ownership, retention of profit, and no special taxes. The disadvantages include unlimited liability, limited financial resources, difficulty in management, overwhelming time commitment, few fringe benefits, limited growth, and limited life span. 2. The three key elements of a general partnership are common ownership, shared profits and losses, and the right to participate in managing the operations of the business. • What are the main differences between general and limited partners? General partners are owners (partners) who have unlimited liability and are active in managing the company. Limited partners are owners (partners) who have limited liability and are not active in the company. • What does unlimited liability mean? Unlimited liability means that sole proprietors and general partners must pay all debts and damages caused by their business. They may have to sell their houses, cars, or other personal possessions to pay business debts. • What does limited liability mean? Limited liability means that corporate owners (stockholders) and limited partners are responsible for losses only up to the amount they invest. Their other personal property is not at risk. • What is a master limited partnership? A master limited partnership is a partnership that acts like a corporation but is taxed like a partnership. • What are the advantages and disadvantages of partnerships? The advantages include more financial resources, shared management and pooled knowledge, and longer survival. The disadvantages include unlimited liability, division of

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