1. Choosing a Form of Business Ownership
Chapter Four
Choosing a Form of
Business Ownership
Copyright © Cengage Learning. All rights reserved.

2. Learning Objectives
Describe the advantages and disadvantages of sole proprietorships.
Explain the different types of partners and the importance of partnership agreements.
Describe the advantages and disadvantages of partnerships.
Summarize how a corporation is formed.
Describe the advantages and disadvantages of a corporation.
Copyright © Cengage Learning. All rights reserved.
4 | 2

3. Learning Objectives
Examine special types of corporations, including S-corporations, limited-liability companies, government-owned corporations, and not-for-profit corporations.
Discuss the purpose of a cooperative, joint venture, and syndicate.
Explain how growth from within and growth through mergers can enable a business to expand.
Copyright © Cengage Learning. All rights reserved.

4. Chapter 4 Outline Sole Proprietorships Partnerships Corporations
Advantages of Sole Proprietorships
Disadvantages of Sole Proprietorships
Beyond the Sole Proprietorship
Partnerships
Types of Partners
The Partnership Agreement
Advantages of Partnerships
Disadvantages of Partnerships
Beyond the Partnership
Corporations
Corporate Ownership
Forming a Corporation
Corporate Structure
Advantages of Corporations
Disadvantages of Corporations

5. Chapter 4 Outline (cont.)
Special Types of Business Ownership
S-Corporations
Limited-Liability Companies
Government-Owned Corporations
Not-for-Profit Corporations
Cooperatives, Joint Ventures, and Syndicates
Cooperatives
Joint Ventures
Syndicates
Corporate Growth
Growth from Within
Growth Through Mergers and Acquisitions
Current Merger Trends

6. Sole Proprietorships
A business that is owned (and usually operated) by one person
The simplest form of business ownership and the easiest to start
Many large businesses began as a small struggling sole proprietorships
The most widespread form of business ownership
Copyright © Cengage Learning. All rights reserved.

7. Advantages and Disadvantages of Sole Proprietorships
Copyright © Cengage Learning. All rights reserved.

8. Partnerships
A voluntary association of two or more persons to act as co-owners of business for profit
Less common form of ownership than sole proprietorship or corporation
No legal limit on the maximum number of partners; most have only 2
Large accounting, law, and advertising partnerships have multiple partners
Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner
Copyright © Cengage Learning. All rights reserved.

9. Types of Partners General partner Limited partner
Copyright © Cengage Learning. All rights reserved.

10. The Partnership Agreement
Articles of partnership
Copyright © Cengage Learning. All rights reserved.

11. Advantages and Disadvantages of Partnerships
Copyright © Cengage Learning. All rights reserved.

12. Corporations
An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts
There are 5.6 million corporations in the U.S.
They comprise only 20% of all businesses, but they account for 83.8 % of sales revenues
Copyright © Cengage Learning. All rights reserved.

13. Corporate Ownership Corporate ownership Stock Stockholder
Closed corporation
Open corporation
Copyright © Cengage Learning. All rights reserved.

14. Forming a Corporation Incorporation Where to incorporate
Domestic corporation
Foreign corporation
Alien corporation
Copyright © Cengage Learning. All rights reserved.

15. Forming a Corporation (cont’d)
Articles of incorporation
Articles of incorporation includes
Stockholders’ rights
Common stock
Preferred stock
Dividend
Proxy
Copyright © Cengage Learning. All rights reserved.

16. Forming a Corporation (cont’d)
Organizational meeting
The last step in forming a corporation
Board members are directly responsible to stockholders for how they operate the firm
Copyright © Cengage Learning. All rights reserved.

17. Corporate Structure Board of directors
The top governing body of a corporation, the members of which are elected by the stockholders
Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm’s overall operation
Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents
Inside directors: top managers from within the corporation
Copyright © Cengage Learning. All rights reserved.

18. Corporate Structure (cont’d)
Corporate officers
The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board
Implement the chosen strategy and direct the work of the corporation, periodically reporting results to the board and stockholders
Copyright © Cengage Learning. All rights reserved.

19. Hierarchy of Corporate Structure
Stockholders exercise a great deal of influence through their right to elect the board of directors
Copyright © Cengage Learning. All rights reserved.

20. Advantages and Disadvantages of Corporations
Copyright © Cengage Learning. All rights reserved.

21. Special Types of Business Ownership
S-corporations
Advantages
S-corporation criteria
Limited-liability company (LLC)
Difference between LLC and S-corporation
Copyright © Cengage Learning. All rights reserved.

22. Special Types of Business Ownership (cont’d)
Government-owned corporations
Purpose
Examples
Not-for-profit corporations
Copyright © Cengage Learning. All rights reserved.

23. Cooperatives, Joint Ventures, Syndicates
Copyright © Cengage Learning. All rights reserved.

24. Corporate Growth Growth from within
Growth through mergers and acquisitions
Current merger trends
Takeover advocates say
Takeover opponents say
Copyright © Cengage Learning. All rights reserved.