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Business Firms. Why do Business Firms Exist?. Business firms exist when people working together can produce more than the sum of individuals working alone can produce. Key Terms: Business Firm, shirking, monitor, residual claimant. Types of Business Firms. Sole Proprietorships- Single Owner

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Presentation Transcript
why do business firms exist
Why do Business Firms Exist?
  • Business firms exist when people working together can produce more than the sum of individuals working alone can produce.
  • Key Terms: Business Firm, shirking, monitor, residual claimant
types of business firms
Types of Business Firms
  • Sole Proprietorships- Single Owner
  • Partnerships-Two or more who own a certain stake in business
  • Corporations-Owned by Stockholders
sole proprietorship advantages
SOLE PROPRIETORSHIPADVANTAGES
  • Easy to form and to close.
  • All decision-making power resides with sole proprietorship.
  • Profit of the firm is taxed once.
sole propritorship disadvantages
SOLE PROPRITORSHIPDISADVANTAGES
  • Unlimited liability-owner responsible for all debts incurred by the business
  • Limited ability to raise funds
  • Ends with retirement or death
partnerships advantages
PARTNERSHIPSADVANTAGES
  • Specialization can be utilized
  • Profit is to the partners and only personal income tax is applied (taxed once)
partnerships disadvantages
PARTNERSHIPSDISADVANTAGES
  • Partners liability is unlimited
  • Decision making can be complicated
corporations advantages
CORPORATIONSADVANTAGES
  • Owners (stockholders) have no liability for debts incurred by the corporation
  • Continue to exist even if one or more owners sell their shares or die
  • Able to raise large sums of capital
corporations disadvantages
CORPORATIONSDISADVANTAGES
  • Subject to double taxation
  • Complicated to set up
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