Ch. 5-2 Forms of Ownership

3 types of Business Ownership Proprietorship Partnership Corporation

Proprietorship- A business owned and run by just one person. Easiest business to start and end. Few legal requirements regarding the business ownership or capital needs. Sole control over all business decisions. Owner receives ALL profit. Owner is responsible for ALL debt. Owner has no shelter from creditors And asset owned by the proprietor can be claimed by creditors to pay businesses debt.

Partnership- A business owned and controlled by two or more people who have entered into an agreement. Quick and easy to start. Owners are both responsible for key business decisions and functions Partners share investments and profits based on the terms of the partnership. Each partner is responsible for debt if the business fails.

Corporation- A separate legal entity formed by documents filed with a state. Owned by one of more shareholders and managed by a board of directors. Have several owners who invest in the business by purchasing stock. Difficult to form than proprietorship or partnership. Must meet more legal requirements Not all owners have direct involvement in decision-making Do not have access to profits unless the board of directors approves it. Corporations protect stockholders to only the amount of money they have invested.

Most U.S. businesses are…

Most U.S. businesses are… Proprietorships! However, proprietorships only make up about 5% of the total business revenue in the U.S.

Which for of business ownership should you start? Choosing a proprietorship: Freedom of working for yourself Total control over decisions Limited knowledge needed Tax advantages LOTS of risk involved

Choosing a Partnership Partnership agreement- A written agreement among all owners that details rules and procedures that guide ownership and operation.

Choosing a Partnership Two or more people can contribute to the investment needed to start the business as well as the expertise to run a business. Each partner is responsible for decisions made by all other partners NO protection for either partner If a partner chooses to leave the partnership or dies, the partnership usually dissolves.

Choosing a corporation Articles of incorporation- A written legal document that defines ownership and operating procedures and conditions for the business. Corporate bylaws- Operating procedures for the corporation Board of Directors- The people who will make the major policy and financial decisions

Choosing a corporation Limited liability: only the money invested can be lost Ownership doesn’t necessarily include being a part of the day to day operations of the company Business can be easily expanded and ownership can be changed easily

Choosing a corporation Decision-making is shared among many people Many records are required and more laws regulate operations. Must pay corporate taxes on profits earned, AND must pay taxes on individual earnings.

Limited liability partnership- Some investors cannot lose more than the amount of their investment, but are not allowed to participate in the day-to-day management Joint venture- A unique business organized by two or more other businesses to operate for a limited time and for a specific project.

Franchise- A written contract granting permission to operate a business to sell products and services in a set way. The franchisee must run the business in the way that the franchiser determines. The franchisee receives the profits of the company, but must pay a percentage to the franchiser in return for operating assistance.

Ch. 5-3 Organizational Structure for Business Mission Statement- A short written statement of the reason a business exists and what it wants to achieve. Goal- A precise statement of results the business expects to achieve. Policies- Guidelines used to make consistent decisions Procedures- Descriptions of the way work is to be done.

Principles of effective organization Responsibility- The obligation to complete specific work Authority- The right to make decisions about how responsibilities should be accomplished Accountability- Taking responsibility for the results achieved.

Unity of command- There is a clear reporting relationship for all staff of a business. Span of control- The number of employees who are assigned to a particular work task and manager. Organizational chart- Diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications.

S Corporation- Owned by members, serves their needs, and is managed in their interest. The primary reason for an S Corporation is to avoid double taxation on corporate income. LLC- Limited liability company- Provides liability protection for owners, combines partnership with corporation. Non-profit corporation- Group of people who join to do some activity that benefits the public.

Functional organizational structure- Work is arranged within main business functions such as production, operations, marketing and human resources. Matrix Organizational structure- Work is structured around specific projects, products, or customer groups.