30 Sep 2013 ... Jeff Madura. Introduction to Business 3e ... Some partners have personal liability
that is limited to the cash or ... expense. – Financial disclosure.
be willing to accept full responsibility for firm performance • Business profits are not shared with creditors • Need strong leadership skills, must be well organized, and communicate well with employees
– All partners have unlimited liability. • Limited
Partnerships
– Some partners have personal liability that is limited to the cash or property they invested in the firm. – One or more general partners who actively manage the business, receive a salary, share in profits and losses, have unlimited liability. – Personal earnings received from the partnership are subject to personal income taxes.
or group must adopt corporate charter and file it with the state – Describes name of the firm, stock issued, firm’s operations – Must also establish bylaws – Shareholders have limited liability – Shareholders elect members of board of directors
members of board of directors who are responsible for establishing general policies of the firm – Elect president and other key officers who run the business
• Earn
return on investment in two ways
– May receive dividends – Stock may increase in value
of privately held corporations is restricted to a small group of investors. • Publicly held shares can be easily purchased or sold by investors. – Act of initially selling stock is called “going public.” – Publicly held corporations obtain additional funds by issuing new common stock.
represents uncertainty about the firm’s future earnings – Depends on future revenues and expenses
• Sole
proprietorships tend to be riskier than larger businesses, such as partnerships and corporations. – Limited funding restricts ability to diversify and spread business risk
Ownership of a Family Business • Purchasing an Existing Business – Assess expertise – Compare expected benefits with initial outlay – Be cautious about basing future earnings expectations on historical data • Franchising
owner (franchisor) allows another (the franchisee) to use its trademark, trade name, or copyright, under specified conditions. • Each franchise operates as an independent business. • Typically owned by a sole proprietor.
a franchise created by a U.S. firm in a foreign country – Return may be higher than in U.S. if there is less competition
• Purchase
a business being sold by the foreign government – Reputation for inefficiency often leads to low prices – Can be high risk due to instability of foreign government
Summary Entrepreneurs can select a form of ownership: – Sole proprietorship – Partnership – Corporation • Return and risk depend on form of business ownership. • Common methods for obtaining ownership of existing businesses: – Family business – Purchase existing business – Franchising •