Choosing a Form of Business Ownership Chapter Four Choosing a Form of Business Ownership Copyright © Cengage Learning. All rights reserved.

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. Copyright © Cengage Learning. All rights reserved. 4 | 2

Learning Objectives Examine special types of corporations, including S-corporations, limited-liability companies, government-owned corporations, 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. Copyright © Cengage Learning. All rights reserved.

Chapter 4 Outline Sole Proprietorships Partnerships Corporations Advantages of Sole Proprietorships Disadvantages of Sole Proprietorships Beyond the Sole Proprietorship Partnerships Types of Partners The Partnership Agreement Advantages of Partnerships Disadvantages of Partnerships Beyond the Partnership Corporations Corporate Ownership Forming a Corporation Corporate Structure Advantages of Corporations Disadvantages of Corporations

Chapter 4 Outline (cont.) Special Types of Business Ownership S-Corporations Limited-Liability Companies Government-Owned Corporations Not-for-Profit Corporations Cooperatives, Joint Ventures, and Syndicates Cooperatives Joint Ventures Syndicates Corporate Growth Growth from Within Growth Through Mergers and Acquisitions Current Merger Trends

Sole Proprietorships A business that is owned (and usually operated) by one person The simplest form of business ownership and the easiest to start Many large businesses began as a small struggling sole proprietorships The most widespread form of business ownership Copyright © Cengage Learning. All rights reserved.

Advantages and Disadvantages of Sole Proprietorships Copyright © Cengage Learning. All rights reserved.

Partnerships A voluntary association of two or more persons to act as co-owners of business for profit Less common form of ownership than sole proprietorship or corporation No legal limit on the maximum number of partners; most have only 2 Large accounting, law, and advertising partnerships have multiple partners Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner Copyright © Cengage Learning. All rights reserved.

Types of Partners General partner Limited partner Copyright © Cengage Learning. All rights reserved.

The Partnership Agreement Articles of partnership Copyright © Cengage Learning. All rights reserved.

Advantages and Disadvantages of Partnerships Copyright © Cengage Learning. All rights reserved.

Corporations An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts There are 5.6 million corporations in the U.S. They comprise only 20% of all businesses, but they account for 83.8 % of sales revenues Copyright © Cengage Learning. All rights reserved.

Corporate Ownership Corporate ownership Stock Stockholder Closed corporation Open corporation Copyright © Cengage Learning. All rights reserved.

Forming a Corporation Incorporation Where to incorporate Domestic corporation Foreign corporation Alien corporation Copyright © Cengage Learning. All rights reserved.

Forming a Corporation (cont’d) Articles of incorporation Articles of incorporation includes Stockholders’ rights Common stock Preferred stock Dividend Proxy Copyright © Cengage Learning. All rights reserved.

Forming a Corporation (cont’d) Organizational meeting The last step in forming a corporation Board members are directly responsible to stockholders for how they operate the firm Copyright © Cengage Learning. All rights reserved.

Corporate Structure Board of directors The top governing body of a corporation, the members of which are elected by the stockholders Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm’s overall operation Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents Inside directors: top managers from within the corporation Copyright © Cengage Learning. All rights reserved.

Corporate Structure (cont’d) Corporate officers The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board Implement the chosen strategy and direct the work of the corporation, periodically reporting results to the board and stockholders Copyright © Cengage Learning. All rights reserved.

Hierarchy of Corporate Structure Stockholders exercise a great deal of influence through their right to elect the board of directors Copyright © Cengage Learning. All rights reserved.

Advantages and Disadvantages of Corporations Copyright © Cengage Learning. All rights reserved.

Special Types of Business Ownership S-corporations Advantages S-corporation criteria Limited-liability company (LLC) Difference between LLC and S-corporation Copyright © Cengage Learning. All rights reserved.

Special Types of Business Ownership (cont’d) Government-owned corporations Purpose Examples Not-for-profit corporations Copyright © Cengage Learning. All rights reserved.

Cooperatives, Joint Ventures, Syndicates Copyright © Cengage Learning. All rights reserved.

Corporate Growth Growth from within Growth through mergers and acquisitions Current merger trends Takeover advocates say Takeover opponents say Copyright © Cengage Learning. All rights reserved.