1. Lecture 05 emad@iqraisb.edu.pk

2. Business Ownership Types.... Sole Proprietorship. – A business that is owned and usually managed by one person. Partnership. – A legal form of business with two or more owners. Corporation. – A legal entity with authority to act and have liability separate from its owners.

3. Corporations make up 20% of the total number of businesses. – They generate 81% of the total revenue. Sole proprietorships make up 72% of the total number of businesses. – Generate 6% of the revenue.

4. Sole Proprietorships Pros – Ease of starting and ending. – Being your own boss. – Pride of ownership. – Retention of profit. – No special taxes.

5. Cons – Unlimited liability ~ define (?) – Limited financial resources. – Difficulty in management. – Overwhelming time commitment. – Few fringe benefits. – Limited growth. – Limited time span.

6. Partnerships Three main elements – Common ownership. – Shared profit/loss. – Right to participate in managing of the business operations. General partners – Have unlimited liability and are active in managing the company. Limited Partners – Have limited liability and do not participate in management of the company.

7. Liability Unlimited liability – Sole proprietors and general partners must pay all debts and damages caused by their company. Personal possessions may have to be sold to pay these costs. Limited liability – Corporate owners (stock holders) and limited partners are only responsible for the amount they invest. Personal property is not at risk.

8. Pros – Greater availability of financial resources. – Shared management & pooled knowledge. – Longer survival chance.

9. Cons – Unlimited liability. – Division of profits. – Disagreements among partners. – Difficulty of termination.

10. Corporations A corporation is a state chartered entity with authority to act and have liability separate from its owners. Reason for people incorporating? – Special tax advantages. – Limited liability.

11. Pros – Greater amount of money for investment. – Limited liability. – Size. – Perpetual life. – Ease of ownership change. – Ease of drawing talented employees.

12. Cons – High initial cost. – Large amount of paperwork. – Difficulty of terminations. – Size. – Double taxation. – Conflict with board of directors.

13. S Corporations. A unique government creation that looks like a corporation but is taxed like sole proprietorships/partnerships. (single Tax for shareholders and business). Conditions to be eligible – Fewer than 75 stock holders – Stockholders must be individuals or estates & U.S. citizens or permanent residents. – Company cannot have more than 25% of income derived from passive sources (rents, royalties, interest etc).

14. Limited liability Companies A company that is similar to the S corporation but without the special eligibility requirements. Pros – Limited liability. – Choice of taxation. – Flexible ownership rules. – Flexible distribution of profit and loss. – Operating flexibility.

15. Cons – No stock. – Limited life span. – Fewer incentives. – Taxes. – Paperwork.

16. Comparison of types of business ownership. – Chapter 5, Book I, pg.155

17. Mergers & Acquisitions Merger – The result of two firms forming a company. Acquisition – One company's purchase of the property and obligations of another company. Vertical Merger – The joining of two companies involved in different stages of related businesses. – Examples? Horizontal Merger – The joining of two firms in the same industry. – Examples?

18. Conglomerate merger – The joining of firms in completely unrelated industries. Leveraged buyout (LBO) – An attempt by employees, management, or a group of investors to purchase an organisation. – Done primarily through borrowing.

19. Franchise An arrangement to buy the rights to use the business name and sell its products or services in a given territory. Pros – Nationally recognised name and reputation. – A proven management system. – Promotional assistance. – Pride of ownership.

20. Cons – High franchise fees. – Managerial regulation. – Shared profits. – Transfer of adverse effects if other franchisees fail.

21. Co-operatives Organisations are organisations that are owned by the members/customers themselves. Controlled by the people who use it – producers, consumers or workers with similar needs who pool their resources for mutual gain. Some people form co-operatives to give members more economic power than they would have as individuals. Small businesses often form co-operatives to gain purchasing, marketing or product development strength.