1. Forms of Business Ownership 5-2

2. Goals Understand the three major forms of business ownership. Determine when each form of business ownership is most appropriate. Recognize other specialized business ownership forms.

3. Business Ownership Proprietorship – a business owned and run by just one person. ◦Easiest form of business to start and end. ◦Few legal requirements & capital needs ◦Allows for sole control over all business activity ◦Receives & determines how all profits ◦ responsible for all business debt

4. Partnership – a business owned and controlled by two or more people who have entered into an agreement. ◦Quite easy to start ◦Owners are responsible decisions & functions ◦Profits & investments are shared based on agreement  Partnership agreement – a written agreement among all owners ◦Each partner is liable for the debt

5. Corporation – a separate legal entity formed by documents filed with a state. ◦Owned by one or more shareholders ◦Managed by a board of directors ◦Difficult to form (must meet more legal requirements) ◦Not all owners have direct involvement in business decisions ◦Owners will not have access to profits unless approved by the board of directors ◦Corporations protect the liability of stockholders

6. Articles of incorporation – a written legal document that defines ownership and operating procedures and conditions for the business Corporate bylaws – the operating procedures for the corp.

7. Other Forms of Ownership Specialized Partnerships and Corp. ◦Limited liability partnership: identifies investors who cannot lose more than the amt. of their investment, but are not allowed to participate in day-to-day management ◦Joint venture: organized by two or more other business to operate for a limited time and for a specific project. ◦Nonprofit Corp.: a group of people who join to do some activity that benefits the public ◦S-Corporation: offers limited liability of a corporation. All income is passed through to the owners based on their investment and is taxed on their individual tax returns.

8. Other Forms of Ownership S-Corporation: offers limited liability of a corporation. All income is passed through to the owners based on their investment and is taxed on their individual tax returns. Limited Liability Company (LLC): combines the best features of a partnership and corporation

9. Other Forms of Ownership Cooperatives and Franchises ◦Cooperative: owned by members, serves their needs, and is managed in their interest. ◦Franchise: a written contract granting permission to operate a business to sell products and services in a set way.  Franchiser – the company the owns the product and service and grants the right to another business  Franchisee – the company purchasing the rights to run the business