Principles of Business, Marketing, and Finance Forms of Business Ownership Copyright © Texas Education Agency, All rights reserved.

Changing Employment Trends New jobs evolve while old jobs disappear. The U.S. has an aging population. Minorities are making up a larger percentage of the workforce. 2 Copyright © Texas Education Agency, All rights reserved.

Businesses in the U.S. Economy Employ millions of Americans Compensate owners and investors Pay taxes to federal, state, and local governments Make and distribute products and services needed by consumers, government, and businesses 3 Copyright © Texas Education Agency, All rights reserved.

Service Business Carry out activities that are consumed by its customers Intermediaries Sell goods and services Producers Create products and services used by other individuals and businesses Three Major Categories of Businesses 4 Copyright © Texas Education Agency, All rights reserved.

Forms of Business Ownership Sole Proprietorship –Individuals who want to work and make decisions independently –Little government regulation –Great risk for the owner 5 Copyright © Texas Education Agency, All rights reserved.

Comparisons of Forms of Business Organization Sole proprietorships Partnerships Corporations

Learning Goal 2 What are the advantages and disadvantages of sole proprietorships?

Sole proprietorships Advantages easy and inexpensive to form & dissolve profits all go to owner direct control of business freedom from government regulations no special taxation Disadvantages hard to raise capital unlimited liability & potential loss limited expertise in all areas trouble finding employees large personal time commitment unstable business life

Partnerships Advantages easy and inexpensive to form diverse skills and expertise flexibility relative freedom from government regulations no special taxation Disadvantages potential conflicts between partners unlimited liability & potential loss sharing profits hard to leave or end partnership

Purpose & duration of partnership Roles, responsibilities, compensation Contributions Procedures for adding/removing partners Buy-out procedures Dispute resolution Financial arrangements Dissolving the partnership Valuation Topics to Cover in a Partnership Agreement Source: American Express Small Business Exchange, home3.americanexpress.com/smallbusiness

Forms of Business Ownership Partnership –The partnership is owned and controlled by two or more people. –Partners share an idea for a business. –Partners want to cooperate in managing and investing, and want to share the risks and rewards of the business. 11 Copyright © Texas Education Agency, All rights reserved.

Forms of Business Ownership Corporation –Separate legal entity owned by one or more shareholders and managed by a board of directors More difficult to form Subject to more regulations Limited liability for investors 12 Copyright © Texas Education Agency, All rights reserved.

Corporation : A legal entity with an existence and life separate from its owners, who therefore are not personally liable for its debts; it can own property, enter into contracts, sue and be sued, and operate under terms of its state charter.

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

Corporations Advantages limited liability easy to get financing easy to transfer ownership unlimited life-span tax deductions Disadvantages double taxation of profits costly & complex to form government restrictions

Limited Liability Partnership & CompanyJoint Venture S- Corporation Nonprofit Corporation FranchiseCooperative Other Forms of Business Ownership 16 Copyright © Texas Education Agency, All rights reserved.

1.S corporations 1. S corporations organized like a corporation, but avoids double taxation of profits by routing income and losses through stockholders 2.Limited liability companies (LLC) 2. Limited liability companies (LLC) offers same limited liability as a corporation, but may be taxed as either a partnership or corporation Types of Hybrid Corporations

Pros Protection of personal assets Avoid double- taxation of profits Flexible management & organization Good for foreign investors Some Pros and Cons of LLC’s Cons Often required to have a limited life (< 30 years) Not corporations, so can not issue stock Source: The Company Corporation,

Does a company have any business organization options besides sole proprietorship, partnership, and corporation? Limited Liability Company Limited Liability Company Provides limited liability for its owners Taxes like a partnership Cooperatives Cooperatives Collectively owned by individuals or businesses with similar interests Combine to achieve more economic power Joint venture Joint venture An alliance of two or more companies Formed to undertake a special project Franchises Franchises Business arrangement between a franchisor and franchisee Franchisee uses business name and logo of franchisor

Formed by people with similar interests, such as customers and suppliers  lower costs  increased economic power  share in profits Members/owners pay annual fees Common in: –agriculture –hardware/lumber –grocery Cooperatives

Joint Venture: 2 or more companies form an alliance to pursue a specific project, usually for a specific time period