Forms of Business Ownership © iStockphoto.com / Rich Yasick

2 Learning Goals 1What are the advantages and disadvantages of the sole proprietorship form of business organization? 2 What are the advantages of operating as a partnership, and what downside risks should partners consider? 3How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?

3  Sole proprietorships  Partnerships  Corporations Business Ownership

4 Sole Proprietorships 1 What are the advantages and disadvantages of the sole proprietorship form of business organization? 1

5 sole proprietorship A business owned,operated, managed and often financed by one individual; the business and the owner are one and the same in the eyes of the law 1 Sole Proprietorships

6 Advantages  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 Disadvantages  Unlimited liability  Difficulty raising capital  Limited managerial expertise  Trouble finding qualified employees  Personal time commitment  Unstable business life  Losses are owner’s responsibility Sole Proprietorships 1

7 CONCEPT check 1 What is a sole proprietorship? Why is this a popular form of business organization? What are the drawbacks to being a sole proprietor?

8 Partnerships 2 What are the advantages of operating as a partnership, and what downside risks should partners consider? 2

9 partnership An association of two or more individuals who agree to operate a business together for profit. limited partnerships have at least one general partner who controls the company's day-to-day operations and is personally liable for business debts, a limited partner's personal liability is capped at the amount of his or her investment Partnerships 2

10 PartnershipsAdvantagesAdvantages  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  Complexity of profit-sharing  Difficulty exiting or dissolving partnership DisadvantagesDisadvantages 2

11 CONCEPT check How does a partnership differ from a sole proprietorship? Describe the three main types of partnerships and explain the difference between a limited partner and a general partner. What are the main advantages and disadvantages of a partnership? 2

12 Corporations 3 How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations? 3

13 corporation A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts. A corporation is chartered by the state in which it is formed and can own property, enter into contracts, sue and be sued, and engage in business operations under the terms of its charter. Corporations 3

14 The 10 Largest U.S. Corporations 1.Wal-Mart Stores 2.ExxonMobil 3.Chevron Texaco 4.General Motors 5.ConocoPhillips 6.General Electric 7.Ford Motor 8.Citigroup 9.Bank of America Corp. 10.AT&T Ranked by 2007 Sales Source: “The 2008 Fortune 500,” Fortune, (April 2008) ©Time Inc. All rights reserved. 3

15 Articles of Incorporation 3  Name of corporation  Company’s goals  Types of stock and number of shares issued  Life of the corporation  Minimum investment by owners  Methods for transferring shares  Address of the corporate office  Names and addresses of the first board of directors Exhibit 4.4

16 CorporationsAdvantagesAdvantages  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 DisadvantagesDisadvantages 3

17 Types of Corporations C Corporation A 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

18 CONCEPT check What is a corporation? Describe how corporations are formed and structured. Summarize the advantages and disadvantages of corporations. Which features contribute to the dominance of corporations in the business world? Why do S corporations and limited liability companies (LLCs) appeal to small businesses? 3