8. What are the disadvantages of a partnership?

• A partnership has unlimited liability and if it is unable to meet its financial obligations, partners have to use their personal assets to pay off all the business’s debts.

• Profit sharing can excite controversy when one or more partners aren’t putting great efforts into the management of the business.

• Disagreements between the partners may cause management conflicts. Partners’ different ideas on how to run the company can lead to disagreements that are likely to harm its business activity.

• The partnership is terminated because of the withdrawal or death of a partner. If the business is to continue, a new partnership agreement must be drawn up.

9. What is a corporation?

Unlike a sole proprietorship or a partnership, a corporation is a business that is authorized by law as a separate legal entity with its own powers, responsibilities, and obligations. The essential feature of a corporation is its legal independence from its owners. Ownership of a corporation is represented by shares of stock also called stock or shares.

10. Who owns and manages a corporation? The corporate owners are known as shareholders or stockholders.

11. What are the advantages of a corporation?

• Limited liability is one of the major advantages of a corporation. Shareholders are not liable for the debts of a company they own shares in. If a business fails shareholders can lose no more than he or she has paid for the shares of stock but their personal assets – car, home, and personal bank accounts – are safe from the creditors of the business.

• Being a separate legal entity, the corporation actually owns and operates the business for the benefit of the shareholders, but under their total control.

• Shares of ownership are transferable. Stockholders can enter or leave a corporation at will simply by buying or selling shares of stock.

• Corporation has unlimited life. The corporation’s power of succession enables it to have a continuous existence. Unlike a sole proprietorship, the death of the corporate stockholders will not terminate the corporation, since their shares are passed on to their heirs.

• It is much easier for a corporation to increase capital to manage and expand its operations. To raise additional funds corporation attracts new stockholders by selling its new issues of shares to the public.

12. What is limited liability?Limited liability: an advantage of a corporation allowing a stockholder no legal responsibility for the debts beyond the sum he or she has invested in the corporation.

13. What are the disadvantages of a corporation?

• A corporation is difficult and expensive to create and organize. This process requires higher start-up capital and the services of a lawyer to obtain a government charter.

• Corporation is subject to double taxation. As a legal entity it pays a corporate income tax. Then, if the corporation distributes some of its net income to the stockholders as dividends, they are taxed again on the stockholders’ individual income tax returns.

The shareholders do not directly manage the corporation's daily operations. Instead, the shareholders meet at a corporation’s annual meeting to elect a board of directors whose job is to make general business decisions. Their decisions are then implemented by the corporation's officers, who are appointed by the directors.

14. What does the process of creating a corporation require?

This process requires higher start-up capital and the services of a lawyer to obtain a government charter.

15. What are dividends?

Dividends: payments made from the earnings of a corporation to its stockholders.