Understand marketing and business management Essential Standard 7.00

Apply knowledge of business ownership to establish and continue business operations. Objective 7.01

Types of Business Ownership Sole Proprietorship Partnership Corporation Cooperative Franchise Which type of ownership is the most common in the United States? Which types of ownership counts for the most revenue in the United States? Which type of ownership is the most common in the United States? Sole proprietorship – 72% Partnership – 20% Corporation – 5% Other – 3% Which type of ownership counts for the most revenue in the United States? Corporation – 85% Partnership – 8% Sole proprietorship – 5% Other – 2%

Sole Proprietorship How many people own a sole proprietorship? Who manages a sole proprietorship? How are sole proprietorships formed? How many people own a sole proprietorship? One Who manages a sole proprietorship? Owner may manage business, or choose to have someone manage for them, and participate in daily operations and decision-making. How are sole proprietorships formed? Easiest form of ownership to start. Varies between states. In North Carolina, register your business name with the appropriate government entity and then get a business license and/or permits.

Sole Proprietorship Advantages & Disadvantages Advantages for Owner Disadvantages for Owner Easy to form Complete control of business Recipient of 100% of the profit One time taxation Limited capital Unlimited liability Limited lifetime

Sole Proprietorship continued How is a sole proprietorship terminated? What are some sources of funding that may be used for investment? What are some local examples? How is a sole proprietorship terminated? Decision or life of owner What are some sources of funding that may be used for investment? Personal, gifts, borrowed, and others may vary What are some local examples? Answers will vary.

Partnership How many people are considered for a partnership ownership? Who manages a partnership? How is a partnership formed? How many people are considered for a partnership ownership? Association of two or more people to carry on as co-owners of a business for profit. Who manages a partnership? Determined by partnership agreement. It may be one or more partners, or someone that has been hired to manage the day-to-day operations. How is a partnership formed? With a partnership agreement. Some states only require a verbal agreement but it is better to have a written agreement. Most states also require a business name and the name of each partner be registered. In North Carolina, partners must choose a name for their business, register the business name with the appropriate government entity, sign a partnership agreement, and then get a business license and/or permits.

Partnership Advantages & Disadvantages Advantages for Partners Disadvantages for Partners Unlimited liability Limited lifetime – if partner leaves or dies Profits are shared Decisions are made jointly Hard to add other partners Easy to form More capital and credit available Work load more evenly shared Losses are also shared

Partnership continued How is a partnership terminated? What are some sources of funding that can be used for investments by partners? What are some examples of partnerships? Can you name some local examples? How is a partnership terminated? Partnerships are terminated by actions of the partners, bankruptcy, death, and/or court order. What are some sources of funding that can be used for investment by partners? Personals of partner(s), gifts, borrowed, and others may vary What are some examples? South Railroad Limited Partnership Eden Limited Partnership (Law and accounting firms are usually good examples for local partnerships.)

Specialized Partnerships Why would an investor choose a limited liability partnership? Why would businesses choose to enter into a joint venture? What is meant by the saying “by proof of existence”? Why would an investor choose a limited liability partnership? If an investor does not want to lose more than the amount of their investment and does not care to be involved in every day operations. Why would businesses choose to enter into a joint venture? When the businesses only want to be partners for a limited time and for a specific reason/project. What is meant by the saying “by proof of existence”? This is used for partnerships or joint ventures that don’t have a formal agreement and just conduct business together. In this case, partners may or may not be aware of their formed partnership.

Participation in the Business Relationship to the Public Types of Partners Type of Partner Participation in the Business Relationship to the Public Degree of Liability General* Active Known Unlimited Dormant Not active Unknown Limited Secret Silent *Every partnership must have at least one general partner.

Corporation Who owns a corporation? How is ownership determined? Who manages a corporation? How are corporations formed? Who owns a corporation? The stockholder (shareholders). An entity with the legal authority to act as a single person. How is ownership determined? Determined by purchase of stock A stockholder, or shareholder, owns a ‘piece’ of the company One share of common stock equals one vote Who manages a corporation? Managers, board of directors, and shareholders How are corporations formed? Filing of an article of incorporation with state government. The business must create corporate bylaws, name a board of directors, and issue shares of stock. In North Carolina, the business must choose a name, choose board of directors, file articles of incorporation, create bylaws, hold a meeting, issue stock, obtain licenses, determine tax obligations, and open a bank account for the business.

Corporation Advantages & Disadvantages Disadvantages of Corporations Advantages of Corporations Double taxation: profits and earnings Subject to more laws than other types of ownership More difficult to form Operations controlled by shareholders and board of directors instead of original owner(s) Example: 10 years after founding Apple, Steve Jobs was fired by the board of directors. Capital easy to obtain Limited liability for shareholders Can invest without having to manage day-to-day operations Possibility of unlimited lifetime of business Decision-making is shared

Corporation continued How is a corporation terminated? What is the source of investment for corporations? What are some examples? How is a corporation terminated? Corporation may have unlimited life. Determined by charter or articles of dissolution, and must be approved by the majority of the board of directors and/or stockholders (shareholders) What is the source of investment for corporations? Purchase of stock shares What are some examples? Walmart, Microsoft, Ford Motor Company, Coca-Cola, Delta

3 Ways for Corporations to grow Consolidation: combining two or more firms through purchase, merger, or ownership transfer to form a new firm. Expansion: a business strategy in which growth is obtained by increasing the number of stores in which customers can buy a company’s products and services. Merger: Voluntary joining of two firms on roughly equal terms into one new legal entity. Consolidation: combining two or more firms through purchase, merger, or ownership transfer to form a new firm. Combining assets, equity, liabilities, and operating accounts of a parent firm and it’s subsidiaries into one financial statement. Expansion: a business strategy in which growth is obtained by increasing the number of stores in which customers can buy a company’s products and services. Merger: Voluntary joining of two firms on roughly equal terms into one new legal entity. Mergers are effected by exchange of the pre-merger stock for stock of the n new firm. Owners of each pre-merger firm continue as owners, and the resources of the merging entities are pooled for the benefit of the new entity.

Specialized Corporations What is special about an S-corporation? Why would a small business operate as an limited liability company (LLC)? Who benefits from services of a nonprofit corporation? What is special about an S-corporation? This type of corporation treats each partner/owner as an individual by taxing them only one time. Why would a small businesses operate as Limited liability company (LLC)? Used by small businesses to receive limited liability protection. No articles of incorporation or bylaws are needed. Who benefits from services of nonprofit corporation? Benefits the public and is exempt from taxation. May get grants from the individuals or businesses to raise funds.

Franchises Franchise: a written contract granting permission to operate a business to sell products and services in a set way. Business-format franchise: a franchising arrangement where the franchisor provides the franchisee with an established business, including name and trademark, for the franchisee to run separately. Product trade-name franchise: a franchising agreement where manufacturers allow retailers to distribute products and use names and trademarks. Franchise: a written contract granting permission to operate a business to sell products and services in a set way. Business-format franchise: a franchising arrangement where the franchisor provides the franchisee with an established business, including name and trademark, for the franchisee to run independently. Product trade-name franchise: A product franchise is a franchising agreement where manufacturers allow retailers to distribute products and use names and trademarks.