1. Understand the Types of Business Ownership
Objective 2.01
Understand the Types
of Business Ownership

2. Types of Business Ownership
Sole Proprietorship
Partnership
Corporation
Cooperative
Franchise

3. Types of Business Ownership
Which type of ownership is the most common in the United States?
Sole proprietorship – 72%
Partnership – 20%
Corporation – 5%
Other – 3%
Which types of ownership counts for the most revenue in the United States?
Corporation – 85%
Partnership – 8%
Sole proprietorship – 5%
Other – 2%

4. Sole Proprietorship Business owned and run by just one person
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
North Carolina – register your business name with the appropriate government entity and then get a business license and/or permits

5. Sole Proprietorship Advantages & Disadvantages
Easy to form
Complete control of business
Recipient of 100% of the profit
One time taxation
Limited capital
Unlimited liability
Limited lifetime
Advantages for Owner
Disadvantages for Owner

6. 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

7. Partnership
Business owned and controlled by two or more people who have entered into a written agreement.
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?
Partnership agreement.
Most states require a business name and the name of each partner be registered.
North Carolina, partners must choose a name for their business, register the business name with the appropriate government entity, sign a partnership agreement, and then get a business license and/or permits

8. Partnership Advantages & Disadvantages
Unlimited liability
Limited lifetime – if partner leaves or dies
Profits are shared
Decisions are made jointly
Hard to add other partners
Easy to form
More capital and credit available
Work load more evenly shared
Losses are also shared
Advantages for Partners
Disadvantages for Partners

9. Partnership continued
How is a partnership terminated?
By actions of the partners, bankruptcy, death, and/or court order
What are some sources of funding that can be used for investments by partners?
Personals of partner(s), gifts, borrowed, and others may vary
What are some examples of partnerships? Can you name some local examples?
South Railroad Limited Partnership
Eden Limited Partnership
(Law and accounting firms are usually good examples for local partnerships)

10. 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

11. Specialized Partnerships (Continued)
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.

12. Participation in the Business Relationship to the Public
Types of Partners
Type of Partner
Participation in the Business
Relationship to the Public
Degree of Liability
General*
Active
Known
Unlimited
Dormant
Not active
Unknown
Limited
Secret
Silent
*Every partnership must have at least one general partner.

13. Corporation Owned by one or more shareholders (stockholders)
An entity with the legal authority to act as a single person
How is ownership determined?
The 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

14. How Are Corporations Formed?
Filing an article of incorporation with state government
Business must create corporate bylaws, name a board of directors, and issue shares of stock
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

15. Corporation Advantages & Disadvantages
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
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.
Advantages of Corporations
Disadvantages of Corporations

16. 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

17. Specialized Corporations
What is special about an S-corporation?
Type of corporation that treats each partner/owner as an individual by taxing them only one time
Why would a small business operate as an limited liability company (LLC)?
Used by small businesses to receive limited liability protection
No articles of incorporation or bylaws are needed

18. Specialized Corporations (Continued)
Who benefits from services of a nonprofit corporation?
Benefits the public and is exempt from taxation
May get grants from individuals or businesses to raise funds

19. Cooperatives Co-op
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
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)

20. Franchises
Why would an individual choose franchise as a form of business?
A franchise grants permission to sell products and services to another business
Offers brand/product recognition and a proven format of business that is successful
What are some examples of a franchise?
Jackson-Hewitt Tax Services
Burger King
Firestone Tires
Local stores selling shell gas