Objective 2.01

Understand the types of business ownership.

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Types of Business Ownership Sole Proprietorship Partnership Corporation Specialized partnership Specialized corporations Cooperative Franchise

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Sole Proprietorship Business owned by one person. Formation may vary by states

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Sole Proprietorship Advantages

For owner Easy to form Complete control of business Recipient of 100% of the profit Low taxes

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Sole Proprietorship Disadvantages

Limited capital Pay for everything yourself Lack of business skills Limited to the lifetime of owner

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Sole Proprietorship Disadvantages

Liabilities Anything that a company owes

Unlimited liability Types of liabilities

Financial Employment

Firing of an employing that missed too many days Accidents and injuries on premises

Customer breaks a leg while on business property Company vehicle-related

Driver runs into a building while driving company’s car Product-related

Toys easily injure toddlers Errors and omissions

Employee accidentally damages a customer’s property

Sole Proprietorship Termination

How is a sole proprietorship terminated?

By decision By death of owner

What are some sources that may be used for investment? Personal, gifts, and loans

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Partnerships Business owned by two or more

persons who share the risks and rewards

Formation varies by each state

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Partnership Agreement Contract that outlines the rights and

responsibilities of each partner How much each partner will invest How to share profits How to divide workload How to end partnership

Actions of the partners, bankruptcy, death and/or court order

Partnership Advantages Easy to start More capital and credit available Work load more evenly shared Losses are also shared Partners bring different skills to the

business Low taxes

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Partnership Disadvantages

Profits are shared Decisions are made jointly Share unlimited legal and financial

liability Disagreement between partners

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Types of Partners

Type of

Partner

Participation in the

Business

Relationship to the Public

Degree of

Liability

Dormant

Not active Unknown Unlimited

General Active Known Unlimited

Limited Not active Known Limited

Secret Active Unknown Unlimited

Silent Not active Known Unlimited12

Corporation Business owned by many people, but treated by

law as one person Stockholders

Owners of a corporation Get share of the profits (dividend) Get to vote on how the business is run

One share of common stock equals one vote Board of Directors

Control the corporation Hire officers who run day-to-day activities (Ex. CEO)

Charter License to run a corporation issued in state of HQ

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Corporation Advantages

Capital easy to obtain (sell stock or bonds)

Limited liability for shareholders Indefinite lifetime

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Corporation Disadvantages

Double taxation: profits and earnings Government regulations Operations controlled by shareholders

and board of directors instead of original owner(s)Ex: 10 years after founding Apple, Steve

Jobs was fired by the board of directors. Difficult to start; complicated to run

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Corporation How is the life of a corporation

terminated? Determined by charter or indefinite

lifetime What is the source of investment

for corporations? Stocks and bonds

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Specialized Corporations S-Corporation, also known as

Subchapter “S”, treats stockholders as individuals by taxing them once.

Limited Liability Company (LLC) Blends elements of corporation and

partnership Why do small businesses operate as LLCs?

To receive limited liability protection Nonprofit Corporation

Does not pass profits onto shareholders Who benefits from services of nonprofit

corporation? Benefits the public and is exempt from taxation

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Types of Corporations Domestic – chartered in a specific

stateExamples located in North Carolina:

Bank of America Corporation Lowe’s Home Improvement Store

Foreign – chartered in one state, but doing business in another state

Alien – chartered in another nation, but doing business in a state

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Types of Corporations Public

Established for a governmental purposesExamples

National Science Foundation Export-Import Bank of the United States

Private Established by individuals for business or

charitable purposes.Examples

IBM American Cancer Society

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Types of Corporations Public

Stock available to general public through stock markets.

Private Stock owned internally by employees of

company.

Cooperatives

Formed by a group of individuals or businesses to serve their needs in order to gain bargaining power against bigger businesses

Owned and controlled equally by the people who use its services or by the people who work there

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Franchise Contractual agreement to sell a company’s

products or services in a designated geographic area

Two main formats: Business-format

Requires franchisee to sell products or service in a specific format

Product trade-name Allows franchisee to sell specific products. This format is usually formed by automobile, appliance,

and petroleum product

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Franchise Advantages

Easy to start Proven methods and product(s) of

parent company Rely on the name of the parent

company Disadvantages

Strict terms of how the business is run Limited as to what products and

services are offered