Accounting and Finance Foundations

Unit 4

Accounting and Finance Foundations Unit 4: Ownership Structures 280

Ownership Structures

Chapter 11

Student Guide

Advantages and Disadvantages of the

Three Basic Forms of Business Ownership

Type of Ownership Advantages Disadvantages

Sole Proprietorship Easy to start business Capital is limited to what the owner

can supply or borrow.

Owner makes all the decisions and is

own boss.

Owner is liable (responsible) for all

debts, even losing personal property if

business fails.

Owner receives all profits. Long hours and hard work often

necessary

Life of the business depends upon

the owner; it ends if the owner quits

or dies.

Partnership Fairly easy to start the business Each partner is liable for business

debts made by all partners, even los-

ing personal property if business fails.

More sources of capital available Each partner can make decisions;

more than one boss

Partners may offer additional business

knowledge or skills to the partnership.

Partnership ends if a partner quits

or dies.

Each partner shares the profit.

Corporation More sources of capital available Difficult to start the corporation

Specialized managerial skills available Owners do not have control of deci-

sions made each day, unless they are

officers of the company.

Owners liable up to the amount of

their investments

Business activities of the corporation

limited to those stated in the certifi-

cate of incorporation

Ownership can be easily transferred

through sale of stock; business not

affected by change of ownership

Lesson 11.1