1. Types of Business Ownership
Own It Your Way
Types of Business Ownership
Business Law LAP 1

2. Objectives
Explain the most common forms of business ownership in a private enterprise system. A
Discuss business start-up strategies. B

3. Explain the most common forms of business ownership in a private enterprise system.

4. The form of ownership affects:
Business activities
Risks
Responsibilities

5. Importance of Ownership
Your choice depends on:
Personal circumstances
Financial needs
Type of business

6. Importance of Ownership
Your choice affects:
Taxation
Liability
Ownership control

7. Sole Proprietorship Types of Ownership:
One owner who assumes all profits and risks (unlimited liability)
Usually fewer than 50 employees
Often found in small, local, and home-based businesses
Receives minimal government intervention
Business and personal taxes are not separate

8. Partnership Types of Ownership:
Two or more owners who combine capital, experience, and abilities
Partners share chance for profits and risk of loss
Two types:
General—each partner has unlimited liability
Limited—partners have limited liability

9. Corporation Types of Ownership:
An “artificial being, invisible, intangible, and existing only in contemplation of the law” (U.S. Supreme Court)
Can borrow and lend money
Can buy and sell goods
Can make contracts
Can sue or be sued
Has an unlimited life span

10. Corporation Types of Ownership: Owners purchase shares of stock
The more shares a person owns, the more control the person has
Minority of U.S. businesses, but generate majority of sales
Subject to more government regulation
Governed by a board of directors

11. Types of Corporations:
Private (Close)
May have just a few shareholders who operate and manage the business
Usually not required to make financial activities public
Prepare reports for the state in which they operate
Subject to dual taxation:
Taxed on profits
Shareholders taxed on dividends

12. Types of Corporations:
“C” Corporation
Public corporation that can sell unlimited shares to unlimited owners
Subject to more government regulation and taxation
Must provide financial information to the public (annual report)
Subject to dual taxation

13. Types of Corporations:
“S” Corporation
Shareholders
Private corporation with special benefits designed to help small businesses
Taxed as a partnership to avoid dual taxation
To qualify, must have 100 or fewer shareholders and adhere to a number of government policies

14. Types of Corporations:
Nonprofit
Operates to accomplish a specific mission other than making a profit
Usually helps society—charitable, educational, religious, scientific, etc.
Income used to fund programs and cover operational expenses
Generally not taxed by the federal government
Many rely on donations and grants

15. Ways Corporations Grow
Merger
Two businesses combine to form a company
Usually happens when a larger company purchases a smaller one (acquisition)
Consolidation—acquiring many smaller companies
Expansion—growing operations with new capital from:
Selling more stock
Reinvesting profits
Obtaining bank loans

16. Hybrid Structure LLP LLC Types of Ownership:
Allows members to enjoy advantages of corporations and either sole proprietorships or partnerships
Can be structured in one of two forms:
Limited liability partnership (LLP)
Limited liability company (LLC)
LLC

17. Hybrid Structure LLP LLC Types of Ownership:
Members determine how to manage company and share profits
Characteristics include:
Limited liability
Limited life
Limited taxation
Unlimited owners/partners
LLC

18. Discuss business start-up strategies.

19. Franchising
Method of distributing recognized goods/services through a legal agreement
Franchisor—parent company who owns company name or trademark
Franchisee—acquires rights to operate using parent company’s name
Franchisor’s product has established brand and reputation

20. Franchising You may be responsible for:
Costs related to facility construction/leasing, equipment, insurance, legal fees
A royalty fee based on a percentage of your profits
Fees to cover advertising expenses
Expensive to start but can be very profitable in the long run

21. Types of Franchises Business-format franchise:
Franchisors often provide:
Training
Financial guidance
Supply channels
Franchisees benefit from franchisor’s national advertising programs
Franchisees are limited in their goods/services, vendors, operating hours, etc. 

22. Types of Franchises
Piggyback franchising (within business-format franchise)
Retail franchise operates within facilities of another store (host)
Host increases its product line
Franchisee has access to host’s customers 

23. Types of Franchises Product trade-name franchise:
Independent sales relationship to stock and sell a specific line of products
Also called dealership or exclusive distributorship
Products bought on consignment or straight from the supplier
Business name chosen by franchisee

24. Multi-Level Marketing Business
Distributors work independently and receive payouts from the sales of people under them
Most distributors can get started for little money
Commission and bonus structures differ between companies
Income is based on time and energy developing contacts
Beware of pyramid schemes!

25. Licensing
An owner’s authorization for another entity to use trademarked, copyrighted, or patented material
Licensor—owner of the material
Licensee—buyer
Licensee pays royalties to licensor in addition to initial licensing fee

26. Joint Venture Also called strategic alliance
Two or more businesses enter into a relationship by combining resources
Relationship is usually short term and involves a single project or transaction
Can help businesses reach new target markets and develop new profit centers for less money

27. Name one example of each type of business in your town:
Sole proprietorship
Partnership
Corporation
Nonprofit corporation
Franchise
Which would you like to own and why?

28. Although shutting out smaller investors is not illegal, do you think it is unethical?

29. Acknowledgments Original Developers:
Christopher C. Burke, Aaron McMahon, MBA Research
Version 2.0
Copyright © 2016
MBA Research and Curriculum Center

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ThinkStock Photos
Various images used in this presentation are ©2016 ThinkStock Photos. All rights reserved

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