Your friend, Vito Guarino (an incredible cook), plans to open a restaurant when he graduates from university. One evening, while extolling the virtues of linguine to you and some other friends, he glances down at your accounting textbook, which is open at Exhibit 1.4. ‘What kind of a business is a restaurant?’ Vito asks, ‘How would a restaurant fit into this exhibit?’ Everyone in the room waits with great anticipation for your answer and the rationale behind it. What will you say?

Exhibit 1.4

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Characteristic Number of owner(s) Size of business Examples of businesses that typically have this legal form Who makes business decisions Sole proprietorships Single owner Small Small retail shops; local service or repair shops; single practitioners such as CPAs, lawyers, doctors Partnerships Two or more owners (partners) Most are small; some professional partnerships e.g. law firms) have several hundred partners Company/corporations Usually many owners (shareholders) Many are very large; some may have stock traded on an exchange Law firms; CPA firms; realestate agencies; Manufacturing companies; multinational family-owned businesses companies; retail store chains; fast-food chains Owner Liability of owner(s) Unlimited Life of organisation Limited Depends on partnership agreement; small partnerships will have all partners involved in business decisions; large partnerships will have managing partners. Partners are agents Unlimited Limited Decided by board of directors; large companies/corporations are managed by business professionals who often own little or no stock Limited Continuous