Forms of Business Ownership
sole proprietorship
partnership
corporation
sole proprietorship
businesses owned and operated by one individual; the most common form of business organization in the United States
Advantages of sole proprietorship
Ease and cost of formation
Secrecy
Distribution and use of profits
Flexibility and control of the business
Government regulation
Taxation
Disadvantages of sole proprietorship
Unlimited liability
Limited sources of funds
Limited skills
Lack of continuity
Lack of Qualified Employees
Taxation
Partnership
association of 2 or more business persons who carry on as co-owners
General Partnership
partnership that involves a complete sharing in both the management and the liability of the business
Limited partnership
1 general partner, assumes unlimited liability and 1 limited partner whose liability is limited to his investment
Articles of Partnership
legal documents that set forth the basic agreement between partners
Partnership Advantages
Ease of organization
Capital & credit
Knowledge & skills
Decision making
Regulatory controls
Partnership Disadvantages
Unlimited liability
Business responsibility
Life of the partnership
Distribution of profits
Limited sources of funds
Taxation of partnerships
Keys to success in a partnership
Keep profit sharing and ownership at 50-50
Partners should have different & complementary skill sets
Honest is critical
Maintain face-to-face communications
Transparency - sharing information
Awareness of funding constraints and limited resources
To be su
Corporations
legal entities created by the state whose assets and liabilities are separate from its owners/ owned by many individuals who own stock
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
corporate charter
a legal document that the state issues to a company based on information the company provides in the articles of incorporation
private corporation
a corporation owned by just one or a few people who are closely involved in managing the business
public corporation
a corporation whose stock anyone may buy, sell, or trade
intitial public offering (IPO)
selling a corporation's stock on public markets for the first time
quasi-public corporations
corporations owned and operated by the federal, state, or local government
nonprofit corporation
corporations that focus on providing a service rather than earning a profit but are not owned by a government entity
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
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
Advantages of Corporations
Limited liability
Transfer of ownership
Perpetual life
External sources of funds
Expansion potential
Disadvantages of Corporations
Double taxation
Forming a corporation
Disclosure of information
Employee-owner separation
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
joint ventures
a partnership established for a specific project or for a limited time
S corporation
corporation taxed as though it were a partnership with restrictions on shareholders
Limited Liability Company (LLC)
form of ownership that provides limited liability and taxation like a partnership but places fewer restrictions on members
Co-op
an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization
merger
the combination of two companies to form a new company- usually corporations
acquisition
the purchase of one company by another, usually by buying its stock
horizontal merger
when firms that make and sell similar products to the same customers merge
vertical merger
when companies operating at different but related levels of an industry merge
conglomerate merger
when two firms in unrelated industries merge
Leveraged Buyout (LBO)
a purchase in which a group of investors borrows money from banks and other institutions to acquire a company (or a division of one), using the assets of the purchased company to guarantee repayment of the loan
If you want to go into business for yourself, the easiest way is a sole proprietorship.
T
Sole proprietroships have the least degree of secrecy.
F
In the US men are twice as likely as woman to start their own business
T
In a partnership, if the goals of the one partner change, the result may be friction and even legal disputes.
T
Partnerships have fewer regulatory controls than corporations.
T
In a general partnership, each partner is liable only for the debts he or she incurs.
F
Corporations cannot be sued.
F
The biggest advantage of the corporate form of ownership may by the limited liability of its owners.
T
A merger occurs when one company buys another by buying its stock.
F
The government usually will scrutinize high profile mergers and acquisitions to ensure that they are not creating a monopoly
T
A sole proprietorship has limited sources of funds, which may affect the growth of business
T
Lack of control is a disadvantage of sole proprietorships.
F