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Published byJemima Jasmin Hawkins Modified over 8 years ago
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Choosing a Form of Business Ownership There’s a good chance that during your lifetime you will work for a business or even start your own business. With this fact in mind, this information will guide to understand how and why businesses are organized and how you can become a successful employee or entrepreneur.
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The 3 Common Forms of Business Ownership 1. Sole Proprietorship 2. Partnership 3. Corporations
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Sole Proprietorship A business that is owned (and usually operated) by one person. It is the most common in retailing, service, and agriculture. They are ranked last in total sales revenues.
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Sole Proprietorship Advantage Simplicity and individual control Cheap Do not pay special state and federal income taxes that corporations pay Disadvantage Unlimited liability- a business owner is personally responsible for all debts of the business Lack of money- banks, suppliers, and other lender usually will not lend money Limited Management Skills- one manager in addition to being sales, buyer, accountant, and sometimes janitor
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Partnerships It is a voluntary association of two or more persons to act as co-owners of a business for profit. Less common than sole proprietorship and corporation. Most have only two partners even though there is no legal limit.
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Partnership Advantages Ease of Start-up. Availability of Capital and Credit- Banks and suppliers may be more willing to extend credit or grant larger loans to such a partnership than a sole proprietorship. Personal Interest- the pride of ownership from solving the day-to-day problems of operating a business- with the help of another person(s)- motivates and makes people in a partnership work harder. Advantages Combined Business Skills and Knowledge- Complementary skills. Retention of Profits No Special taxes
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Partnership Disadvantage Unlimited Liability- Each partner is legally and personally responsible for the debts and actions of any other partner, even if that partner did not incur those debts or do anything wrong. Management Disagreements Lack of Continuity Frozen Investment
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BEYOND THE PARTNERSHIP The main advantages of a partnership over sole proprietorship are the added capital and management expertise of the partners. Main disadvantage is unlimited liability. Can you guess how this issue is fixed in the business world?
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Corporations It is an artificial person created by law, with most of the legal rights of a real person. Rights that include: starting and operating a business, to buy or sell property, to borrow money, to sue or be sued, and enter into binding contracts.
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Corporations They only account for 20% of all businesses, yet account for 84.4% of sales revenue.
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Corporations Advantages Limited Liability Ease of raising capital Ease of transfer of ownership Perpetual Life Specialized Management Disadvantages Difficulty and Expense of Formation Government regulation and increased paperwork Conflict within the Corporation Double Taxation Lack of Secrecy
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