{ Selecting a Form of Business Ownership BUS 150 – Chapter 3 Professor Kudek 1

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages 3. Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Describe advantages and disadvantages of partnership 4. Explain corporate formation and operation Discuss advantages/disadvantages of corporation Discuss advantages/disadvantages of corporation 5. Examine special types of ownership 6. Define mergers and acquisitions and explain motivation to merge/acquire Chapter Objectives

o What willing to do? o How much control? o Share profits? o Special Taxes? o Skills Needed? o Business continuance? o Financing Needs? o Liability exposure? Factors to Consider in Selecting Legal Form

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages Chapter Objectives

“…a business owned by only one person.” Sole Proprietorship

Characteristics of Sole Proprietorship o Most common- 75% o Easiest and cheapest o Few government regulations o Complete Control o Get all earned income o No special taxes

Challenges of Sole Proprietorship o Supply all talents o Death = dissolution o Own Resources = financing o Unlimited liability

Sole Proprietorship & Unlimited Liability

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages 3. Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Describe advantages and disadvantages of partnership Chapter Objectives

“…a business owned jointly by two or more people.” General Partnership

Characteristics of General Partnership o 6% of businesses o Some large = Big 4 accounting firms o Relatively easy & inexpensive o Shared responsibility & talent o Financing easier o Continuity not issue o No special taxes

Characteristics of General Partnership o More complex than sole proprietorship o Disputes among partners o Unlimited liability including for partner actions o Shared decisions o Share profits

 Cash/Contribution of partners  Division of income/loss  Partner responsibilities  Conditions for sale  Conditions for dissolving  Conditions for settling disputes Partnership Agreement

General Partnership & Unlimited Liability

o Permitted by law o Two types of Partners o General- runs business and responsible for liability o Limited- limited involvement, losses = investment Limited Partnership

GeneralPartners LimitedPartnerLimitedPartner LimitedPartnerLimitedPartner

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages 3. Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Describe advantages and disadvantages of partnership 4. Explain corporate formation and operation Discuss advantages/disadvantages of corporation Discuss advantages/disadvantages of corporation Chapter Objectives

“…a legal entity separate from the parties who own it.” Corporation

Characteristics of Corporation as Legal Entity o Enter into binding contracts o Buy/Sell property o Sue/Be sued o Responsible for all actions o Taxed

Types of U.S. Businesses

o Invest money (stock or shares) o Ownership % = % of total shares o Elects Board of Directors Characteristics of Shareholders

o Outside group of people o Responsible for governing o Oversees major policies & decisions o Sets goals o Holds management accountable o Hires/Evaluates CEO o Approves dividends Board of Directors

CorporationBenefits o Limited Liability o Financial Resources o Specialized management o Continuity & Transferability Drawbacks o Goals of management & shareholders differ o Costly to set up o Regulation & Gov’t Oversight o Double taxation

“…stock is held by only a few individuals...not allowed to sell it to the general public.” Closely Held Corporation

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages 3. Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Describe advantages and disadvantages of partnership 4. Explain corporate formation and operation Discuss advantages/disadvantages of corporation Discuss advantages/disadvantages of corporation 5. Examine special types of ownership Chapter Objectives

o S-Corp. o Tax rules = partnership/sole proprietorship o Limited liability protection o Qualify o <100 stockholders o U.S. resident/citizen o 100% agreement on decision to form o Limited-Liability Corp. o Members not personally liable o Taxed once o No ownership restrictions Other Types of Business Ownership

o Cooperatives o Owned/controlled by those using services o Shares financial success with members o Not-For-Profit Corp. o Public service besides financial gain o Exempt from taxes o Contributions tax deductible Other Types of Business Ownership (cont’d)

1. Identify questions in choosing a form of business ownership 2. Describe sole proprietorship and advantages and disadvantages 3. Identify types of partnerships and explain partnership agreement Describe advantages and disadvantages of partnership Describe advantages and disadvantages of partnership 4. Explain corporate formation and operation Discuss advantages/disadvantages of corporation Discuss advantages/disadvantages of corporation 5. Examine special types of ownership 6. Define mergers and acquisitions and explain motivation to merge/acquire Chapter Objectives

o Merger- two companies combine to form new company o Acquisition- purchase of one company by another Merger V. Acquisition

o Gain complementary products o Attain new markets or distribution channels o Realize economies of scale Motives Behind Mergers & Acquisitions

“…a takeover resisted by the targeted company’s management and its board of directors.” Hostile Takeover