Business Ownership Marketing 1
Business Ownership A characteristic of free enterprise- private ownership Types of ownership determined through the legal organization of the business Type of ownership is key decision for entrepreneur Four forms of business ownership
Forms of Business Ownership Sole Proprietorship Partnership Corporation Limited Liability Company (LLC)
Sole Proprietorship Owned and operated by one person Most common form of business ownership Approximately 70% of all U.S. businesses are sole proprietorship Sole Proprietor provides all of the skill, money, and management to run the business Assumes ALL risk- unlimited liability Retains ALL profit Income taxed as personal income
Examples of Sole Proprietors Housekeeping service Landscape service Plumber Electrician Web site designer/manager CPA/ Accounting service Shop/boutique owner Restaurant owner Business where ONE person owns and operates the business
Partnership Legal agreement between two or more people for joint responsibility for success or failure of business Represents about 10% of businesses in U.S. Formed by partnership agreement- legal document Specifies responsibilities of each partner Profit/Loss shared by partners
Types of Partnerships General Partnership Limited Partnership
General Partnership Each partner shares in profits and losses profit taxed as personal income for each partner Unlimited liability for company debts
Limited partnership Each partner responsible for debt of company but limited to the amount of investment in the company Required that there is at least ONE General Partner who has unlimited liability In exchange for limited risk, limited partners do not have a voice in the management of the company Withdrawal of a limited partner does not dissolve the company
Corporation Owned by several people but is considered “one person” under the law Must obtain legal permission by state to operate- process begun with an application to state Once permission granted this becomes the charter for the corporation Considered to be a separate legal entity can borrow money, take out loans, sue, sign contracts, and buy and sell property
corporations Stockholders are owners of company- can sell stock to raise capital for the corporation Stockholders elect Board of Directors to run the company Board of Directors make top management decisions affecting the business Corporations offer owners limited liability (personal affects of owner cannot be taken if company does not meet its financial obligations or is sued) Corporation is not affected by death, incapacity, or bankruptcy of a stockholder or officer
Types of corporations Private- formed by private persons; broad category; can be “closely held”- which does not sell stock on open market or “publicly held”- which does sell stock Public- created by federal, state, or local government- can include schools, transit
Limited Liability Company (LLC) Relatively new form Hybrid of partnership & corporation Owners (called members) are shielded from personal liability All profits/losses pass directly to owners without taxation
Class Activity Students work individually Compare and contrast the advantages and disadvantages of each form of business ownership Chart will be provided by teacher 50 Points