Chapter 4: Choosing a Form of Business Ownership

Learning Objectives Describe the advantages and disadvantages of sole proprietorships. Explain the different types of partners and the importance of partnership agreements. Describe the advantages and disadvantages of partnerships. Summarize how a corporation is formed. Describe the advantages and disadvantages of a corporation.

Learning Objectives (cont.) Examine special types of corporations, including S-corporations, limited-liability companies, and not-for-profit corporations. Discuss the purpose of a cooperative, joint venture, and syndicate. Explain how growth from within and growth through mergers can enable a business to expand.

Sole Proprietorships, Partnerships, and Corporations in the U.S. Define: Sole proprietorship Partnership Corporation Which is the most common form of business organization? Which form of business organization accounts for the largest percentage of sales?

Advantages and Disadvantages of Types of Business Ownership What are the defining characteristics of Sole Proprietorships Partnerships Corporations What are the advantages and disadvantages of each organizational form?

Sole Proprietorships Know why sole proprietorships are popular. Who owns sole proprietorships? Do these businesses tend to be large or small? Where do sole proprietorships obtain financing?

Partnerships What is the difference between a: General partner Limited partner What are articles of partnership? What information should this document include? Why is it a good idea to create articles of partnership?

Corporations How is a corporation different from a sole proprietorship or a partnership? What are the forms of corporate ownership? Be able to define: Stock Stockholder Closed corporation Open corporation Why do corporations issue stock?

Forming a Corporation How does one form a corporation? Define incorporation. Why is it a good idea to consult a lawyer when forming a corporation? What are some of the aspects of business that may require legal expertise?

Forming a Corporation (cont.) Where can a business incorporate? Define: Domestic corporation Foreign corporation Alien corporation What is the corporate charter? What information does it include?

Stockholders’ Rights Be able to define and discuss the following: Common stock Preferred stock Dividend Proxy What is an organizational meeting? When does it occur in the process of forming a corporation?

Hierarchy of Corporate Structure What is a board of directors? What role does it play in a corporation? What is the difference between outside and inside directors? Who are corporate officers? What do they do? Who are stockholders? How do they influence a corporation’s board of directors?

Special Types of Business Ownership Know and be able to discuss special types of business ownership. S-corporations What are the required criteria to adhere to this type of ownership? What are the advantages and disadvantages? Limited-liability company (LLC) What are the differences between S-corporations and LLCs? How are S-corporations and LLCs different from regular corporations?

Special Types of Business Ownership (cont.) Be able to define not-for-profit corporations. How does the goal of a not-for-profit differ from other businesses? Do not-for-profits pay taxes?

Joint Ventures and Syndicates Define: Joint Ventures When are joint ventures advantageous for businesses? Syndicates When are syndicates used? How long do these organizations last?

Corporate Growth How do corporations grow? Growth from within Growth through mergers and acquisitions Define: Merger Hostile takeover Tender offer Proxy fight

Corporate Growth (cont.) Be able to define and distinguish between different types of mergers. Horizontal mergers Vertical mergers Conglomerate mergers

The Future of Mergers and Acquisitions What have been the merger and acquisition trends during the 21st century, especially during the most recent economic crisis? What do recent corporate takeover trends indicate about the future business environment? What are the arguments for and against corporate takeovers?