Chapter 4 THE FUTURE OF BUSINESS: The Essentials Gitman & McDaniel THE FUTURE OF BUSINESS: The Essentials Gitman & McDaniel Chapter 4 Forms of Business Ownership

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 2 Principles of Business Ownership Financing? Employees? Business taxes? Debt liability? Operating control? Ownership? 1

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 3 SOLE PROPRIETORSHIPS 1 a business owned by only one person a business owned by only one person Sole Proprietorship

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 4 SOLE PROPRIETORSHIPS 1 AdvantagesAdvantages  Easy and inexpensive to form  Profits go to the owner  Direct control of the business  Freedom from government regulations  No special taxation  Ease of dissolution DisadvantagesDisadvantages  Unlimited liability  Difficulty in raising capital  Limited managerial expertise  Trouble finding qualified employees  Personal time commitment  Unstable business life  Losses are owner’s responsibility

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 5 PARTNERSHIPS 2 a business owned by two or more people who share its risks and rewards a business owned by two or more people who share its risks and rewards Partnership

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 6 PARTNERSHIPS 2  Ease of formation  Availability of capital  Diversity of skills and expertise  Flexibility  No special taxes  Relative freedom from government control  Unlimited liability  Potential for conflicts between partners  Sharing of profits  Difficulty exiting or dissolving AdvantagesAdvantagesDisadvantagesDisadvantages

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 7 CORPORATIONS 3 a company that is registered by a state and operates apart from its owners a company that is registered by a state and operates apart from its owners Corporation

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 8 The Incorporation Process 3 Select company’s name Write articles of incorporation Pay required fees and taxes Hold organizational meeting Adopt bylaws, elect directors, pass operating resolutions

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 9 The Corporate Structure 3 Stockholders Directors PresidentVPTreasurerSecretary Officers Elect Hire

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 10 CORPORATIONS 3  Limited liability  Ease of transferring ownership  Unlimited life  Tax deductions  Ability to attract financing  Double taxation of profits  Cost and complexity of formation  More government restrictions AdvantagesAdvantagesDisadvantagesDisadvantages

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 11 Types of Corporations C Corporation Conventional or basic corporate form of organization S Corporation A hybrid entity that is organized like a corporation, but taxed like a partnership Limited Liability Company (LLC) A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation 3

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 12 4 Cooperatives Legal entities formed by people with similar interests, to reduce costs and gain economic power. Cooperatives Seller Cooperatives Individual producers join together to compete more effectively with large producers Buyer Cooperatives A group of cooperative members who unite for combined purchasing power

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 13 5 contractual agreement to use the name and sell the products or services of a company in a designated geographic area contractual agreement to use the name and sell the products or services of a company in a designated geographic area Franchising

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 14 5 Franchises  Increased ability for franchisor to expand  Recognized name, product, and operating concept  Management training and assistance  Financial assistance  Loss of control  Cost of franchising  Restricted operating freedom AdvantagesAdvantagesDisadvantagesDisadvantages

Chapter 4 Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved 15 5 A type of business that focuses on providing a service rather than making a profit A type of business that focuses on providing a service rather than making a profit Non-Profit Organization Non-Profit Organization Non-Profit