1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 1 ESSENTIAL QUESTION(S): 1.What are the main types of business ownership? 2.What are the characteristics of the main types of business ownership? 2.01 Objective Understand the Types of Business Ownership. 37

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 5-2 Forms of Business Ownership Goal 1Understand the three major forms of business ownership. Goal 2Determine when each form of business ownership is most appropriate. Goal 3Recognize other specialized business ownership forms.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 3 KEY TERMS ●proprietorship ●partnership ●corporation ●partnership agreement ●articles of incorporation ●franchise

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 4 BUSINESS OWNERSHIP 1)Proprietorship 2)Partnership 3)Corporation 4)Cooperative 5)Franchise 38

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SOLE PROPRIETORSHIP  How many people own a sole proprietorship?  One  Who manages a sole proprietorship?  Owner may manage business, or choose to have someone manage for them, and participate in daily operations and decision-making.  How are sole proprietorships formed?  Easiest form of ownership to start. Varies between states. In North Carolina, register your business name with the appropriate government entity and then get a business license and/or permits. SLIDE 5 38

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Sole Proprietorship Advantages & Disadvantages Advantages of Owner ●Easy to form ●Complete control of business ●Recipient of 100% of the profit ●One time taxation SLIDE 6 Disadvantages of Owner Limited capital Unlimited liability Limited lifetime 38

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Sole Proprietorship continued ●How is a sole proprietorship terminated? ●Decision or life of owner ●What are some sources of funding that may be used for investment? ●Personal, gifts, borrowed, and others may vary ●What are some local examples? ●Answers will vary. SLIDE 7 38

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 PARTNERSHIP ●How many people are considered for a partnership ownership? ●Association of two or more people to carry on as co-owners of a business for profit. ●Who manages a partnership? ●Determined by partnership agreement. It may be one or more partners, or someone that has been hired to manage the day-to- day operations. ●How is a partnership formed? ●With a partnership agreement. Some states only require a verbal agreement but it is better to have a written agreement. Most states also require a business name & the name of each partner be registered. In North Carolina, partners must choose a name for their business, register the business name with the appropriate government entity, sign a partnership agreement, & then get a business license and/or permits. SLIDE 8 39

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Partnership Advantages & Disadvantages Advantages for Partners ●Easy to form ●More capital and credit available ●Work load more evenly shared ●Losses are also shared Disadvantages for Partners ●Unlimited liability ●Limited lifetime – if partner leaves or dies ●Profits are shared ●Decisions are made jointly ●Hard to add other partners SLIDE 9 39

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Partnership Continued ●How is a partnership terminated? ●Partnerships are terminated by actions of the partners, bankruptcy, death, and/or court order. ●What are some sources of funding that can be used for investment by partners? ●Personals of partner(s), gifts, borrowed, and others may vary ●What are some examples? ●Law and accounting firms are usually good examples for local partnerships. SLIDE 10 39

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Specialized Partnerships ●Why would an investor choose a limited liability partnership? ●If an investor does not want to lose more than the amount of their investment and does not care to be involved in every day operations. ●Why would businesses choose to enter into a joint venture? ●When the businesses only want to be partners for a limited time and for a specific reason/project. ●What is meant by the saying “by proof of existence”? ●This is used for partnerships or joint ventures that don’t have a formal agreement and just conduct business together. In this case, partners may or may not be aware of their formed partnership. SLIDE 11 39

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Types of Partners SLIDE 12 *Every partnership must have at least one general partner. 40

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 CORPORATION ●Who owns a corporation? ●The stockholder (shareholders). ●An entity with the legal authority to act as a single person. ●How is ownership determined? ●Determined by purchase of stock ●A stockholder, or shareholder, owns a ‘piece’ of the company ●One share of common stock equals one vote ●Who manages a corporation? ●Managers, board of directors, and shareholders ●How are corporations formed? ●Filing of an article of incorporation with state government. The business must create corporate bylaws, name a board of directors, and issue shares of stock. In North Carolina, the business must choose a name, choose board of directors, file articles of incorporation, create bylaws, hold a meeting, issue stock, obtain licenses, determine tax obligations, and open a bank account for the business. SLIDE 13 41

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Corporation Advantages & Disadvantages Advantages ●Capital easy to obtain ●Limited liability for shareholders ●Can invest without having to manage day-to-day operations ●Possibility of unlimited lifetime of business ●Decision-making is shared Disadvantages ●Double taxation: profits and earnings ●Subject to more laws than other types of ownership ●More difficult to form ●Operations controlled by shareholders and board of directors instead of original owner(s) Example: 10 years after founding Apple, Steve Jobs was fired by the board of directors. SLIDE 14 41

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Corporation Continued ●How is a corporation terminated? ●Corporation may have unlimited life. Determined by charter or articles of dissolution, and must be approved by the majority of the board of directors and/or stockholders (shareholders) ●What is the source of investment for corporations? ●Purchase of stock shares ●What are some examples? ●Walmart, Microsoft, Ford Motor Company, Coca- Cola, Delta SLIDE 15 41

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Specialized Corporations ●What is special about an S-corporation? ●This type of corporation treats each partner/owner as an individual by taxing them only one time. ●Why would a small businesses operate as Limited liability company (LLC)? ●Used by small businesses to receive limited liability protection. No articles of incorporation or bylaws are needed. ●Who benefits from services of nonprofit corporation? ●Benefits the public and is exempt from taxation. May get grants from the individuals or businesses to raise funds. SLIDE 16 41

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 COOPERATIVES & FRANCHISES ●Why would an individual or business choose to be part of a cooperative? ●Formed by a group of individuals or businesses to serve their needs in order to gain bargaining power against bigger businesses. Also, allows for goods or services to be purchased at a lower price as a group and is owned by the members of the cooperative. ●What are some examples of a cooperative? ●Agricultural cooperatives, housing cooperatives, utility cooperative, credit unions (cooperative banking) ●Why would an individual choose franchise as a form of business? ●A franchise grants permission to sell products and services to another business. It offers brand/product recognition and a proven format of business that is successful. ●What are some examples of franchises? ●Jackson-Hewitt Tax Services ●Burger King ●Firestone Tires ●Local stores selling shell gas SLIDE 17 42

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Which type of ownership is the most common in the United States? SLIDE 18 42

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Which types of ownership counts for the most revenue in the US? SLIDE 19 42

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 20 Forms of Ownership U.S. Business Comparison by Form of Ownership Form of Ownership Number of Businesses (2006) Total Revenue (Thousands) Percent of All Businesses Percent of Total Revenue Proprietorship22,075,0001,278,000,00071.53%4.06% Corporation5,841,00026,070,000,00018.93%82.82% Partnership2,947,0004,131,000,0009.55%13.12% Total30,863,00031,479,000,000100.00% 43

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 21 Checkpoint ●What are the differences between the three main forms of business ownership? ●Business forms differ in the ways in which decision-making and investments are made and to whom liabilities are distributed. 43

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 22 Checkpoint ●Which form of business ownership is the most complex and difficult to form? ●The corporation is more complex to begin than other business forms. ●Forming a corporation requires much more bureaucracy, is more subject to government regulations, requires the organization of a board, and must have clearly defined bylaws. 43

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 23 Checkpoint ●What are the other specialized forms of business ownership? ●Limited liability partnership ●Joint venture ●S corporation ●Limited liability company (LLC) ●Nonprofit corporation 43

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Types of Business Ownership Brochure Activity Special Types of Ownership Describe the types of specialized partnerships and corporations, including examples Describe cooperative Describe franchise, including examples 2 Examples- texts, symbols, or pictures of a franchise Name Date Period Class Title Business Quote or Picture Corporation  Definition  How many owners?  Who manages?  How is business started?  2 Advantages  2 Disadvantages  Limited or unlimited liability  Example  How is ownership terminated?  Sources of investment  How many in NC  2 Examples-texts, symbols, or pictures Partnership  Definition  How many owners?  Kinds of partners  Who manages?  How is business started?  2 Advantages  2 Disadvantages  Limited or unlimited liability  Example  How is ownership terminated?  Sources of investment  How many in NC  2 Examples-texts, symbols, or pictures Proprietorship  Definition  How many owners?  Who manages?  How is business started?  2 Advantages  2 Disadvantages  Limited or unlimited liability  Example  How is ownership terminated?  Sources of investment  How many in NC  2 Examples-texts, symbols, or pictures SLIDE 24 Page 1 Page 2 44

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 Types of Partners Activity ●See PBF 2.01 Packet SLIDE 25 Stock Watch Activity (Students will need graph paper.) 45