1. Copyright © 2007 South-Western. All rights reserved. Chapter 5 Selecting a Form of Business Ownership

2. Copyright © 2007 South-Western. All rights reserved. Learning Objectives Selecting a Form of Business Ownership Existing FirmsSole Proprietor Risk & Return Partnership Corporation

3. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. The Key Decisions in Running a Business

4. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Selecting a Form Sole Proprietor Partnership Corporation Risk & Return Existing Firms Insert Chart from page 159

5. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Sole Proprietorship Sole Proprietor Partnership Corporation Risk & Return Existing Firms 10% Profit 70% of all Businesses Single Owner

6. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Sole Proprietorships Sole Proprietor Partnership Corporation Risk & Return Existing Firms Disadvantages - Losses - Unlimited Liability - Limited Funds - Limited Skills Advantages - Earnings - Easy Organization - Control - Low Taxes

7. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Partnership Sole Proprietor Partnership Corporation Risk & Return Existing Firms General Partnership Limited Partnership General Partners Limited Partners

8. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Partnerships Sole Proprietor Partnership Corporation Risk & Return Existing Firms Disadvantages - Shared Control - Unlimited Liability - Shared Profits Advantages - Additional Funds - Shared Losses - Specialization

9. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. S-Corporations Sole Proprietor Partnership Corporation Risk & Return Existing Firms Limited Liability Personal Tax

10. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Limited Liability Company LLC Sole Proprietor Partnership Corporation Risk & Return Existing Firms Limited Liability Partnership Benefits

11. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Corporations Sole Proprietor Partnership Corporation Risk & Return Existing Firms

12. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Stockholder Returns Sole Proprietor Partnership Corporation Risk & Return Existing Firms Stock PriceDividends Publicly Held Privately Held

13. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Corporations Sole Proprietor Partnership Corporation Risk & Return Existing Firms Disadvantages - High Expense - Financial Disclosure - Agency Problems - High Taxes Advantages - Limited Liability - Access to Funds - Ownership Transfer Capital Gains

14. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Double Taxation Sole Proprietor Partnership Corporation Risk & Return Existing Firms

15. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Comparing Business Forms Sole Proprietor Partnership Corporation Risk & Return Existing Firms Can Change No Magic Answer www.sbaonline.sba.gov

16. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Equity Sole Proprietor Partnership Corporation Risk & Return Existing Firms Firm “A” Partnership Firm “B” Corporation After-tax earnings $15 million Owner’s Equity $100 million$300 million Return on Equity 15%5%

17. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Ownership & Risk Sole Proprietor Partnership Corporation Risk & Return Existing Firms # of Owners and funds Risk (R1)

18. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Owning an Existing Business Sole Proprietor Partnership Corporation Risk & Return Existing Firms Family Business Existing Business Franchise

19. Selecting a Form of Business Ownership Copyright © 2007 South-Western. All rights reserved. Franchise Sole Proprietor Partnership Corporation Risk & Return Existing Firms Disadvantages - Sharing Profits - Less Control Advantages - Proven Style - Name Recognition - Financial Support Chain Style Distributorship