1 Chapter 7 Business Ownership and Organization 9/12/2015 © ©1999 South-Western College Publishing.

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Presentation transcript:

1 Chapter 7 Business Ownership and Organization 9/12/2015 © ©1999 South-Western College Publishing

2 Legal Forms of Business Proprietorships Partnerships Corporations

Forms of Business Organizations Exhibit 1 Proprietorships (74.0%) Partnerships (7.4%) Corporations (18.6%) PERCENTAGE OF U.S. FIRMS Proprietorships (6.0%) Partnerships (4.4%) Corporations (89.7%) PERCENTAGE OF TOTAL BUSINESS RECEIPTS

4 What is the simplest business form? Sole Proprietorship © ©1999 South-Western College Publishing

5 What is a Sole Proprietorship? A firm owned by one person who alone bears the responsibility and unlimited liability of the firm © ©1999 South-Western College Publishing

6 How do I establish a Sole Proprietorship? Be able to show that you are attempting to make a profit Give your business a name File Schedule C with taxes © ©1999 South-Western College Publishing

7 What are the advantages of a Sole Proprietorship? Simplicity and ease of organization Can work it part time Total control over decisions Work with family members Little government regulation

8 What are the disadvantages of a Sole Proprietorship? The proprietor & the firm are legally inseparable Proprietor has unlimited liability Limited funds for expansion Limited life Benefits of specialization not realized

9 What is Unlimited Liability? The owners personal wealth is subject to appropriation to pay off the firm’s debt © ©1999 South-Western College Publishing

10 What is a Partnership? A firm owned by two or more persons who each bear the responsibilities and unlimited liabilities © ©1999 South-Western College Publishing

11 What are the advantages to a Partnership? Ease of organization Shared financial support Greater specialization possible Limited regulation © ©1999 South-Western College Publishing

12 What are the disadvantages of a Partnership? Disagreements All partners 100% liable Partners legally inseparable from the business Death of a partner ends the agreement

13 Want to go into your own business? © ©1999 South-Western College Publishing

14 What is a Corporation? A firm whose legal identity is separate from the people who own shares of stock © ©1999 South-Western College Publishing

15 What are the advantages of a Corporation? It is a separate legal being from its owners, giving owners limited liability Permanent entity Benefits of specialization Easier to raise funds for expansion

16 What is a Stock? Ownership in a corporation represented by shares that are claims on the firm’s assets and earnings © ©1999 South-Western College Publishing

17 Who is a Stockholder? A person owning at least one share of stock in a corporation © ©1999 South-Western College Publishing

18 What is an advantage of selling stock? The money never need be paid back © ©1999 South-Western College Publishing

19 What is the disadvantage of selling stock? The original owners can lose control over the corporation if too much stock is sold © ©1999 South-Western College Publishing

20 What is a Dividend? That part of a corporation’s net income that is paid out to its stockholders © ©1999 South-Western College Publishing

21 What is Common Stock? Stockholders can vote according to their share of outstanding stock © ©1999 South-Western College Publishing

22 How does Preferred Stock differ from Common Stock? 1. It does not carry voting privileges 2. Dividend yield is fixed 3. First claim on dividends © ©1999 South-Western College Publishing

23 Find out more about investing! © ©1999 South-Western College Publishing

24 What is a Corporate Bond? A corporate IOU specifying loan duration and the interest rate © ©1999 South-Western College Publishing

25 What is the advantage of selling bonds? Because no ownership comes with the bond the corporation runs no risk of losing control © ©1999 South-Western College Publishing

26 What is the disadvantage of selling bonds? The money borrowed has to be paid back © ©1999 South-Western College Publishing

27 What are the downsides to a Corporation? Harder to organize Double taxation More government regulation Separation of ownership and management © ©1999 South-Western College Publishing

28 What is a Sole Proprietorship? What is a Partnership? What is a Corporation? What is a Stock? What is a Dividend? What is a Corporate Bond? What is a Hostile Takeover?