Ch. 16 study guideCh. 16 study guide.docVIP

Chapter 16, Sole proprietorships, Partnership, and Limited Liability Companies study guide Dear Class: This study guide provides a basic guide to business associations other than corporations. Please read it with your book, because the book may contain more examples to help you study. Overview There are many different ways to organize a business. The selection will depend on different factors, and the same business association is not appropriate for all different business plans. This study guide will discuss sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, franchises and licenses. Limited liability This concept means that an owner of a business association is only liable up to the amount of his or her investment in the business association. If the business association cannot pay off its debts, an owner with limited liability has no further liability. Sole proprietorship (“SP”) (p.369-372) The simplest and most common form of business association Advantages: Easy and costs little to form. Owner has a right to make all management decisions concerning the business Sole proprietor owns all the business and has the right to receive all profits Sole proprietorship can be easily transferred without any outside approval Disadvantages: Owner has unlimited personal liability for the business’s contracts and the torts of the business’s employees. It is difficult to raise capital, since the owner cannot offer equity in return for capital Creation (p.370) Creation is simple, no formalities are required. Some local governments require all businesses, including SP’s, to obtain a license to operate within the city D.b.a (“Doing business as”) (p.371) SP can operate under the name of the sole proprietor or a trade name E.g., Scott Johnson can operate a sole proprietorship called “Scott Johnson,” or under a trade name such as “Scott Johnson, d.b.a “The Business Law Learning Center” Some states require d.b