1. Forms of Business Ownership
©William Klinger. This work is licensed under a Creative Commons Attribution 4.0 license 
Adapted from Fundamentals of Business 
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2. Review Describe absolute and comparative advantage.
How is trade measured?
Explain licensing agreements and franchises.
How do companies expand internationally?
What differences between countries create challenges to business?
Describe how governments and international bodies promote and regulate global trade.

3. Learning Objectives
Identify the questions to ask in choosing the appropriate form of ownership for a business.
Describe the sole proprietorship.
Understand partnerships.
Understand the corporate form.
Examine special types of business ownership.
Understand mergers and acquisitions.
Adapted from Fundamentals of Business 
Download this book for free at: ttp://hdl.handle.net/10919/70961

4. Factors to Consider Cost and complexity Control Taxes Skills needed
Relationship with co-owners
Financing
Liability
Legacy

5. Sole Proprietorship Simple to set up Owner has Disadvantages
Complete control
All income
Profits taxed as personal income
Disadvantages
Unlimited liability
May lack skills needed
May lack financing
Business ends when you leave

6. Partnership Partnership agreement spells out Disadvantages
Financial contributions
Revenue sharing
Responsibilities
Disadvantages
Unlimited liability
Limited Partnership
General partner has unlimited liabilities
Limited partners’ liabilities limited to investment

7. Corporation Legal entity Owned by shareholders Inc., Ltd., NV, GmbH
Signs contracts
Can own property
Can sue/be sued
Owned by shareholders
Elect a Board of Directors, BOD
BOD hires Chief Executive Officer, CEO

8. Corporation Pros Cons Limited liability Can sell stock Continuity
Agency problem
Double taxation
Firm pays corporate tax
Owners pay personal tax on dividends

9. Types of U.S. Businesses
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10. Limited-Liability Company, LLC
Legal entity
Owners are called “members”
May have just one owner
Pros
Easy to form
Limited liability
No double taxation
May be large
E.g. Dominos, Crayola, many banks

11. LLC Owner may be personally liable if Personally guarantees a loan
Fails to pay employment taxes
Engages in fraud or illegal behavior
Doesn’t treat LLC as separate entity

12. The Major Business Forms
Liability
Other
Sole proprietorship
Unlimited personal
One owner
Owner receives all profits
Easy to form
Limited financing
Limited management skills
Partnership
Additional management skills
Additional financing
Potential personal conflicts
Difficult to dissolve
LLC
Limited
Single taxation
Certain restrictions
Corporation
Harder to form and run
Double taxation

13. Cooperative (co-op) Form
Owners are users of its services
Examples
Ocean Spray Cooperative
Southern States Cooperative
REI

14. Not-For-Profit Corporation (Nonprofit)
Formed for public purpose
Charity
Religion
Education
Scientific
Literary
Does not pay income tax
Donations are tax-deductible

15. Mergers & Acquisitions
Two companies combine
Acquisition
One company purchases another
Hostile takeover
Look for synergy

16. Types of Mergers & Acquistions
Horizontal
Companies are in the same business
E.g. Adidas acquired Reebok
Vertical
Firms in same value chain for a product
Goal is to reduce costs
E.g. Ebay bought PayPal, Coke bought bottlers
Conglomerate
Firms in unrelated businesses
Why do firms do this?