Forms of Business Ownership © iStockphoto.com / Rich Yasick.

18
Forms of Business Ownership © iStockphoto.com / Rich Yasick

Transcript of Forms of Business Ownership © iStockphoto.com / Rich Yasick.

Page 1: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

Forms ofBusiness

Ownership

© iS

tock

phot

o.co

m /

Ric

h Y

asic

k

Page 2: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

2

Learning Goals

1 What are the advantages and disadvantages of the sole proprietorship form of business organization?

2 What are the advantages of operating as a partnership, and what downside risks should partners consider?

3 How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?

Page 3: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

3

Sole proprietorships

Partnerships

Corporations

Business Ownership

Page 4: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

4

Sole Proprietorships

1

What are the advantages and disadvantages of the sole proprietorship form of business organization?

1

Page 5: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

5

sole proprietorship

A business owned ,operated, managed and often financed by one individual; the business and the owner are one and the same in the eyes of the law

1

Sole Proprietorships

Page 6: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

6

AdvantagesAdvantages

Easy and inexpensive to form

Profits go to the owner Direct control of the

business Freedom from government

regulations No special taxation Ease of dissolution

DisadvantagesDisadvantages

Unlimited liability Difficulty raising capital Limited managerial

expertise Trouble finding

qualified employees Personal time commitment Unstable business life Losses are owner’s

responsibility

Sole Proprietorships

1

Page 7: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

7

CONCEPT check

1

What is a sole proprietorship?

Why is this a popular form of business organization?

What are the drawbacks to being a sole proprietor?

Page 8: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

8

Partnerships

2

What are the advantages of operating as a partnership, and what downside risks should partners consider?

2

Page 9: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

9

partnership

An association of two or more individuals who agree to operate a business together for profit.

limited partnerships

have at least one general partner who controls the company's day-to-day operations and is personally liable for business debts, a limited partner's personal liability is capped at the amount of his or her investment

Partnerships

2

Page 10: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

10

Partnerships

AdvantagesAdvantagesAdvantagesAdvantages

Ease of formation Availability of capital Diversity of skills and

expertise Flexibility No special taxes Relative freedom from

government control

Unlimited liability Potential for conflicts

between partners Complexity of profit-sharing Difficulty exiting or

dissolving partnership

DisadvantagesDisadvantagesDisadvantagesDisadvantages

2

Page 11: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

11

CONCEPT check

How does a partnership differ from a sole proprietorship?

Describe the three main types of partnerships and explain the difference between a limited partner and a general partner.

What are the main advantages and disadvantages of a partnership?

2

Page 12: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

12

Corporations

3

How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?

3

Page 13: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

13

corporation

A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts.

A corporation is chartered by the state in which it is formed and can own property, enter into contracts, sue and be sued, and engage in business operations under the terms of its charter.

Corporations

3

Page 14: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

14

The 10 Largest U.S. Corporations

1. Wal-Mart Stores

2. ExxonMobil

3. Chevron Texaco

4. General Motors

5. ConocoPhillips

6. General Electric

7. Ford Motor

8. Citigroup

9. Bank of America Corp.

10. AT&T

Ranked by 2007 Sales

Source: “The 2008 Fortune 500,” Fortune, http://money.cnn.com/magazines/fortune

(April 2008)©Time Inc. All rights reserved.

3

Page 15: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

15

Articles of Incorporation

3

Name of corporation

Company’s goals

Types of stock and number of shares issued

Life of the corporation

Minimum investment by owners

Methods for transferring shares

Address of the corporate office

Names and addresses of the first board of directors

Exhibit 4.4

Page 16: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

16

Corporations

AdvantagesAdvantagesAdvantagesAdvantages

Limited liability Ease of transferring

ownership Unlimited life Tax deductions Ability to attract

financing

Double taxation of profits

Cost and complexityof formation

More government restrictions

DisadvantagesDisadvantagesDisadvantagesDisadvantages

3

Page 17: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

17

Types of Corporations

C CorporationC Corporation A conventional or basic corporate form of organization

A conventional or basic corporate form of organization

S CorporationS Corporation A hybrid entity that is organized like a corporation, but taxed like a partnership

A hybrid entity that is organized like a corporation, but taxed like a partnership

Limited LiabilityCompany (LLC)

Limited LiabilityCompany (LLC)

A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation

A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation

3

Page 18: Forms of Business Ownership © iStockphoto.com / Rich Yasick.

18

CONCEPT check

What is a corporation? Describe how corporations are formed and structured.

Summarize the advantages and disadvantages of corporations. Which features contribute to the dominance of corporations in the business world?

Why do S corporations and limited liability companies (LLCs) appeal to small businesses?

3