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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.

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Presentation on theme: "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."— Presentation transcript:

1 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.

2 The 3 Common Forms of Business Ownership 1. Sole Proprietorship 2. Partnership 3. Corporations

3 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.

4 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

5 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.

6 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

7 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

8 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?

9 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.

10 Corporations They only account for 20% of all businesses, yet account for 84.4% of sales revenue.

11 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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