1. Understand the nature of business.
2.01 Understand the types of business ownership.

2. Business Ownership Sole Proprietorship Partnership Corporation
Franchise

3. Sole proprietorship A business owned and run by one person
The business is typically managed by the owner.
Formation varies by state.

4. Advantages Easy to start up Complete control of the business
Owner receives all the profits
Limited taxes (one time taxation)

5. Disadvantages Limited capital (money)
Unlimited liability (responsible for ALL debt)
The business is limited to the lifetime of the owner

6. Partnership
A business owned and controlled by two or more people who have entered a written agreement
The management of the company depends on the partnership agreement.

7. Advantages
More capital and credit available than a sole proprietorship
Combined resources (money, expertise)
Shared management responsibilities
Shared risk
Work load easier to manage than a sole proprietorship

8. Disadvantages Profits are shared Responsible for each others decisions
Potential for disagreement among partners
Unlimited liability (depending on type)

9. Limited Liability Partnership
Identifies some investors who cannot lose more than the amount of their investment
Investors are not allowed to participate in the day-to-day business management

10. Types of Partnerships
Dormant partner plays no role and is not known to the public.
General partner plays an active role and has unlimited liability (every partnership must have at least one general partner).
Limited participate as investors and have limited liability.
Secret partner plays an active role but is secret from society.
Silent partner does not have an active role but is known to the public.

11. Participation in the Business Relationship to the Public
Types of Partnerships
Type of Partner
Participation in the Business
Relationship to the Public
Degree of Liability
Dormant
Not active
Unknown
Unlimited
General
Active
Known
Limited
Secret
Silent

12. Corporations
An organization owned by one or more shareholders and managed by a board of directors.
Ownership
Determined by purchase of stock
A stockholder, or shareholder, owns a ‘piece’ of the company
One share of common stock equals one vote

13. Advantages Easier to obtain capital Limited liability for shareholders
Life of the corporation is unlimited

14. Disadvantages Double taxation (profits and earnings)
Government regulations and legal restrictions
Decision-making shared among managers, board of directors, and shareholders

15. Specialized Corporations
Subchapter S (S-corporation)
treats partners as individuals by taxing them once
Limited Liability Company
Provides limited liability protection for owners
Nonprofit corporation
A group of people who join to do some activity that benefits the public

16. Types of Corporations Domestic - chartered in a specific state
Examples located in North Carolina:
Bank of America Corporation
Lowe’s Home Improvement Store
Foreign - chartered in one state, but doing business in another state
Alien - chartered in another nation, but doing business in a state

17. Types of Corporations continued
Public-established for a governmental purposes
Examples
National Science Foundation
Export-Import Bank of the United States
Private-established by individuals for business or charitable purposes.
Enterprise Rent-A-Car
American Cancer Society

18. Cooperatives
Owned by members, serves their needs, and is managed in their interest
Purchase goods and services cheaper as a group than as individuals
Greater bargaining power than as individuals

19. Franchise
Permission to operate a business to sell products and services in a set way
Begins with a parent company who owns the product or service and grants the right to another business
Franchiser: the company that owns the product
Franchisee: the company purchasing the right to run the business

20. Types of Franchises Business-format Product trade-name
Requires franchisee to sell products or service in a specific format
Product trade-name
Allows franchisee to sell specific products. This format is usually formed by automobile, appliance, and petroleum product