Forms of Business Ownership

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Learning Goals

1 What are the advantages and disadvantages of the sole proprietorship form of business

organization?

2 What are the advantages of operating as a partnership, and what downside risks should partners consider?

3 How does the corporate structure provide

advantages and disadvantages to a company, and what are the major types of corporations?

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 Sole proprietorships

 Partnerships

 Corporations

Business Ownership

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Sole Proprietorships

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What are the advantages and disadvantages of the sole proprietorship form of

business organization?

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sole proprietorship

A business owned ,operated, managed and

often financed by one individual; the business and the owner are one and the same in the

eyes of the law

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Advantages Advantages

 Easy and inexpensive to form

 Profits go to the owner

 Direct control of the business

 Freedom from government regulations

 No special taxation

 Ease of dissolution

Disadvantages Disadvantages

 Unlimited liability

 Difficulty raising capital

 Limited managerial expertise

 Trouble finding

qualified employees

 Personal time commitment

 Unstable business life

 Losses are owner’s responsibility

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CONCEPT check

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What is a sole proprietorship?

Why is this a popular form of business organization?

What are the drawbacks to being a sole proprietor?

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Partnerships

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What are the advantages of operating as a partnership, and what downside risks should partners consider?

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partnership

An association of two or more individuals who agree to operate a business together for profit.

limited partnerships

have at least one general partner who controls the company's day-to-day operations and is

personally liable for business debts, a limited

partner's personal liability is capped at the amount of his or her investment

Partnerships

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Partnerships

Advantages Advantages Advantages Advantages

 Ease of formation

 Availability of capital

 Diversity of skills and expertise

 Flexibility

 No special taxes

 Relative freedom from government control

 Unlimited liability

 Potential for conflicts between partners

 Complexity of profit-sharing

 Difficulty exiting or dissolving partnership

Disadvantages Disadvantages Disadvantages Disadvantages

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CONCEPT check

How does a partnership differ from a sole proprietorship?

Describe the three main types of partnerships and explain the difference between a limited partner and a general partner.

What are the main advantages and disadvantages of a partnership?

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Corporations

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How does the corporate structure provide

advantages and disadvantages to a company, and what are the major types of corporations?

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corporation

A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts.

A corporation is chartered by the state in which it is

formed and can own property, enter into contracts, sue and be sued, and engage in business operations under the terms of its charter.

Corporations

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The 10 Largest U.S. Corporations

1. Wal-Mart Stores 2. ExxonMobil

3. Chevron Texaco 4. General Motors 5. ConocoPhillips 6. General Electric 7. Ford Motor

8. Citigroup

9. Bank of America Corp.

10. AT&T

Ranked by 2007 Sales Source: “The 2008 Fortune 500,”

Fortune, http://money.cnn.com/magazines/fortune (April 2008)

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Articles of Incorporation

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 Name of corporation

 Company’s goals

 Types of stock and number of shares issued

 Life of the corporation

 Minimum investment by owners

 Methods for transferring shares

 Address of the corporate office

 Names and addresses of the first board of directors

Exhibit 4.4

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Corporations

Advantages Advantages Advantages Advantages

 Limited liability

 Ease of transferring ownership

 Unlimited life

 Tax deductions

 Ability to attract financing

 Double taxation of profits

 Cost and complexity of formation

 More government restrictions

Disadvantages Disadvantages Disadvantages Disadvantages

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Types of Corporations

C Corporation

C Corporation A conventional or basic corporate form of organization

A conventional or basic corporate form of organization

S Corporation

S Corporation A hybrid entity that is organized like a corporation, but taxed like a partnership A hybrid entity that is organized like a corporation, but taxed like a partnership

Limited Liability Company (LLC) Limited Liability

Company (LLC)

A hybrid organization that offers the

same liability protection as a corporation but may be taxed as either a partnership or a corporation

A hybrid organization that offers the

same liability protection as a corporation but may be taxed as either a partnership or a corporation

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CONCEPT check

What is a corporation? Describe how corporations are formed and structured.

Summarize the advantages and disadvantages of corporations. Which features contribute to the dominance of corporations in the business world?

Why do S corporations and limited liability

companies (LLCs) appeal to small businesses?

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