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Forms of Business Ownership

•Sole proprietorship•Partnership•Corporation

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Forms of Business Ownership

Businesses owned and operated by one individual; the most common form of business organization in the world

Sole Proprietorship

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Sole Proprietorship

E.g., •Many restaurants•Hair salons•Flower shops•Dog kennels•Independent grocery stores

Sole Proprietorship -- Facts

• 80% of all businesses• Men more likely than

women to start own business

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Forms of Business Ownership

•Ease and cost of formation•Secrecy•Distribution and use of profits•Flexibility and control of the business•Government regulation•Taxation

Advantages of a Sole Proprietorship

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Forms of Business Ownership

•Unlimited liability•Limited sources of funds•Limited skills•Lack of continuity•Lack of Qualified Employees•Taxation

Disadvantages of a Sole Proprietorship

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Forms of Business Ownership

A form of business organization defined by the Uniform Partnership Act as “an association of two or more persons who carry on as co-owners of a business for profit”

Partnership

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Forms of Business Ownership

•General partnership•Limited partnership

Types of Partnerships

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Forms of Business Ownership

A partnership that involves a complete sharing in both the management and the liability of the business

General partnership

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Forms of Business Ownership

A business organization that has at least one general partner, who assumes unlimited liability, and at least one limited partner whose liability is limited to his or her investment in the business.

Limited partnership

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Partnerships Advantages & Disadvantages

Advantages•Ease of organization•Capital & credit•Knowledge & skills•Decision making•Regulatory controls

Disadvantages•Unlimited liability•Business responsibility•Life of the partnership•Distribution of profits•Limited sources of funds•Taxation of partnerships

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Forms of Business Ownership

Legal entities created by the state whose assets and liabilities are separate from its owners.

Corporations

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Forms of Business Ownership

Typically owned by many individuals and/or organizations who own shares of the business – stock (shareholders or stockholders)

Corporations

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Corporations

Stock – shares of a corporation that may be bought or sold

Dividends – profits of a corporation that are distributed in the form of cash payments to stockholders.

Stock & Dividends

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Corporations

A Corporation is created (incorporated) under the laws of the state in which it incorporates. The individuals creating the corporation are called incorporators.

Creating a Corporation

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Corporations

Legal documents filed with basic information about the business with the appropriate state office.

Articles of Incorporation

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Corporations

Private corporationPublic corporationQuasi-public corporationNon-profit corporation

Types of Corporations

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Corporations

Private corporation – a corporation owned by just one or a few people who are closely involved in managing the business

Types of Corporations

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Corporations

Public Corporation– a corporation whose stock anyone may buy, sell, or trade.

Types of Corporations

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Corporations

Initial Public Offering (IPO) – A private corporation who wishes to go “public” to raise additional capital and expand. The IPO is selling a corporation’s stock on public markets for the first time.

Types of Corporations

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Corporations

Quasi-public corporation – Corporation owned and operated by the government (Ziraat Bank).

Types of Corporations

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The Largest U.S. CorporationsFortune’s 2007 rankings of America’s largest corporations

Rank Company Revenues ($millions)

1 Wal-Mart $378,799

2 Exxon Mobil $372,824

3 Chevron $210,783

4 General Motors $182,347

5 Conoco Phillips $178,558

6 General Electric $176,656

7 Ford Motor $172,468

8 Citigroup $159,229

9 Bank of America $119,190

10 AT&T $118,928

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Corporations

Non-profit corporation – focuses on providing a service rather than earning a profit but are not owned by a government entity (American Red Cross, Kizilay)

Types of Corporations

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Corporations

•Board of directors•Preferred stock•Common stock

Elements of a Corporation

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Corporations

Board of Directors – a group of individuals elected by the stockholders to oversee the general operation of the corporation who set the corporation’s long-range objectives.

Board of Directors

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Corporations

Preferred stock – a special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

Common Stock – stock whose owners have voting rights in the corporation, yet do not receive preferential treatment regarding dividends.

Stock Ownership

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Corporations

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• Advantages:– Limited liability– Transfer of ownership– Perpetual life– External sources of

funds– Expansion potential

• Disadvantages:– Double taxation– Forming a corporation– Disclosure of

information– Employee-owner

separation

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Trends in Business Ownership

•Mergers

•Acquisitions

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Other Types of Business Ownership

Merger – the combination of two companies (usually corporations) to form a new company

Acquisition – the purchase of one company by another, usually by buying its stock and/or assuming its debt.