1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 1 5-2 5-2Forms of Business Ownership 5 C H A P T E R Economic Decisions and Systems

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 5-2 Forms of Business Ownership Goal 1Understand the three major forms of business ownership. Goal 2Determine when each form of business ownership is most appropriate. Goal 3Recognize other specialized business ownership forms.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 3 KEY TERMS ●Proprietorship - A business owned and run by just one person. ●Partnership - A business owned and controlled by two or more people who have entered into a written agreement. ●Corporation - A separate legal entity formed by documents filed with a state. It is owned by one or more shareholders and managed by a board of directors.

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 4 KEY TERMS ●Partnership agreement – A written agreement among all owners detailing the rules and procedures that guide ownership and operations. ●Articles of incorporation – A written legal documents that defines ownership and operating procedures and conditions for the business.

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 5 KEY TERMS ●Franchise – A written contract granting permission to operate a business to sell products and services in a set way.

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 6 BUSINESS OWNERSHIP ●Proprietorship ●The easiest form of business to start and end. ●Few legal requirements regarding the ownership or capital needs that must be met. ●Owner has sole control over all business decisions. ●Owner receives all profits. ●Owner responsible for all debts. ●Unlimited liability.

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 7 BUSINESS OWNERSHIP ●Partnership ●Easy to start. ●Business decisions and functions are shared. ●The partners share investments and profits. ●Each partner is liable for all of the debts of the business if it fails.

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 8 BUSINESS OWNERSHIP ●Corporation ●Formed by filing documents with a state. ●Owned by one or more shareholders. ●Managed by a board of directors. ●More difficult to form. ●Many legal requirements. ●Owners do not have direct access to profits. ●Limited liability to only the amount of money invested.

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 9 Forms of Ownership U.S. Business Comparison by Form of Ownership Form of Ownership Number of Businesses (2006) Total Revenue (Thousands) Percent of All Businesses Percent of Total Revenue Proprietorship22,075,0001,278,000,00071.53%4.06% Corporation5,841,00026,070,000,00018.93%82.82% Partnership2,947,0004,131,000,0009.55%13.12% Total30,863,00031,479,000,000100.00% Most U.S. businesses are organized as proprietorships, however they have a very small percentage of business revenues.

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 10 Checkpoint ●What are the differences between the three main forms of business ownership? ●Business forms differ in the ways in which decision-making and investments are made and to whom liabilities are distributed.

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 11 CHOOSING A FORM OF BUSINESS OWNERSHIP ●Choosing a proprietorship ●For people who want total independence, do not want to be exposed to significant government regulation, want to be in control of all business decisions, and are willing to take on the entire risk of a business, the proprietorship offers an effective form of ownership.

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 12 CHOOSING A FORM OF BUSINESS OWNERSHIP ●Choosing a partnership ●A partnership is a good ownership form for people who share an idea for a business. They want to cooperate in managing and investing in the business. ●It is the easiest form for people who work well together and want to share the risks and rewards of the business

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 13 CHOOSING A FORM OF BUSINESS OWNERSHIP ●Choosing a corporation ●It is the most popular form of ownership for large businesses. ●You must file articles of incorporation with the appropriate state government office. ●Corporations are treated as “individuals” by governments and are taxed on profits earned. Then the investors also pay taxes on their individual earnings from the business.

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 14 Checkpoint ●Which form of business ownership is the most complex and difficult to form? ●The corporation is more complex to begin than other business forms. ●Forming a corporation requires much more bureaucracy, is more subject to government regulations, requires the organization of a board, and must have clearly defined bylaws.

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 15 OTHER FORMS OF OWNERSHIP ●Specialized partnerships and corporations ●A limited liability partnership identifies some investors who cannot lose more than the amount of their investment, but they are not allowed to participate in the day-to-day management of the business. This type of partnership is difficult and costly to set up.

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 16 OTHER FORMS OF OWNERSHIP ●Specialized partnerships and corporations ●A joint venture is a unique business organized by two or more other businesses to operate for a limited time and for a specific project. It is a type of partnership.

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 17 OTHER FORMS OF OWNERSHIP ●Specialized partnerships and corporations ●An S corporation offers the limited liability of a corporation. All income is passed through to the owners based on their investment and is taxed on their individual tax returns.

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 18 OTHER FORMS OF OWNERSHIP ●Specialized partnerships and corporations ●A limited liability company (LLC) provides liability protection for owners. It has a simpler set of organizing and operating requirements than a corporation. No articles of incorporation or bylaws are needed.

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 19 OTHER FORMS OF OWNERSHIP ●Specialized partnerships and corporations ●A nonprofit corporation is a group of people who join to do some activity that benefits the public. They work in areas such as education, health care, charity, or the arts. Nonprofit corporations are free from corporate income taxes.

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 20 OTHER FORMS OF OWNERSHIP ●Cooperatives and franchises ●A cooperative is owned by members, serves their needs, and is managed in their interest. Members form a consumer cooperative so that they can purchase goods and services more cheaply as a group than they could individually.

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 21 OTHER FORMS OF OWNERSHIP ●Cooperatives and franchises ●A franchise is a written contract granting permission to operate a business to sell products and services in a set way. It is a way to expand a business using the investments of others while maintaining control over the name, product quality, and operating procedures.

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 5 SLIDE 22 Checkpoint ●What are the other specialized forms of business ownership? ●Limited liability partnership ●Joint venture ●S corporation ●Limited liability company (LLC) ●Nonprofit corporation