Sole Proprietorship

Partnership
Corporations

Forms of Ownership
Comparison

Sole Proprietorships
Oldest and Most Common dated by to

colonial times
Owner and Managed by one individual with
minimum amount of help
$$$ capital used to start business comes from
the owners savings or getting a loan.

Advantages and
Disadvantages of Sole
Disadvantages
Proprietorships
Advantages
Ease of Starting

Unlimted Liability - means you are

Control

responsible for the debts that are incurred by the

business and if the debt goes beyond what the
business is worth, you could loose your personal
property, such as your house, etc.)

Own all Profits

Difficult to Raise Capital people who

Use Owners Abilities

Limited Management Abilities

Tax Breaks are tax exemptions that help reduce your

Time Demands

taxable income by claiming business expenses. Tax breaks are

incentives made by the government to entice people to go into
business for themselves (free economy)

Employee hiring and retention

Secrecy
Ease of dissolving

own a sole proprietorship start their business with either their

own personal savings and a bank load.

- most people who own their

own business spend 60-80 hours a week at work for the first 3
years.

Partnerships
Two or more people own a partnership
They share everything
Can be based on a written, oral, or implied

agreement (legally)
Two types of partners
General partner has unlimited liability
Limited partner has limited liability

** Terms of each partner are specifically defined in the Articles

of Partnership.

Types of Partnerships
MLP (Master Limited Partnership)
Sells units traded on recognized stock exchange
Limited liability
Transferability of ownership
Pays no corporate taxes because the earnings are passed

directly to unit holders. They pay their own individual

income taxes.
Example is the NBA (National Basketball Association.

Joint Venture
a partnership formed for a special purpose or project.

When the project is completed, the joint venture is

dissolved.

Articles of Partnership
(the
partnership
contract)
Name of the business partnership
Type of business
Locations of the business
Expected life of the partnership or re-evaluation

date.
Procedures for distributing profits and covering
losses
Responsibilities and duties of each partner
Procedures for withdrawal of funds
Procedures for dissolving a partnership
Time length of a partnership is determined by the
language in the Articles of partnership. Investments
are usually frozen at least 3 years.

Advantages and
Disadvantages of
Disadvantages
Partnerships
Advantages
More financial capital

Unlimited Liability for general

partners

Combined managerial skills

Ease of starting

Difficult to Raise Capital

Clear legal status

Frozen investment
Tax Breaks/advantages
Instability
Limited liability for limited partners
Potential disagreements

Corporations
A corporation is a business that is a legal

entity separate from its owners. It has legal

rights of an individual. It can:
Own property
Owe money (take out loans)
Hire and terminate employees
Sue or be sued by other persons and/or other

corporations

A corporation is owned by

shareholders/stockholders.

Types of Corporations
Domestic Corporation a corporation that

conducts business in the state in which it was

incorporated.

Foreign Corporation A corporation that

conducts business in a state other than the

state it was incorporated in.

Steps to Incorporation
1.
2.
3.
4.
5.
6.

7.

Fill out the Articles of Incorporation application for a charter.

The form gets reviewed by state government officials
The State sends back a charter (a states written agreement
giving a corporation the right to operate a business.
All shareholders meet and elect a Board of Directors
BOD approve the bylaws (rules and regulations of a
corporation)
Select managers and make any new decisions needed to
start the business. Managers make the day to day decisions
while the BOD make periodic decisions.
A corporate policy is established by a BOD which is elected
by the shareholders. (The more shares you own, the more
votes you have.

What is a proxy?
A proxy is a written statement signed by a
shareholder of a corporation allowing
someone else to cast his or her number of
votes.

Mergers and Acquisitions

Merger a process in which one firm buys the

assets and assumes the obligations of another

company.
Horizontal Merger occurs when competitive firms in the
same market merge into a single firm.
Vertical Merger when a firm mergers together with its
supplier or distributor
Conglomerate Merger firms merging together selling
goods in unrelated markets.

Acquisition the process in which one firm buys

the assets and assumes the obligations of

another company.

V
Sissies Dairy
e
r
t
i
c Pops Ice Cream
l
a
l
M
Grannies
e
Restaurant
r
g
e
r

Sonnys Fruit
Orchard

Hickory Tree

Conglomerate Merger
Moms Apple Pie

Gramps
Restaurant

Horizontal Merger

Homerun Baseball
Company

Sports Town USA

Other types of
Corporations
S Corporation a corporation with 35 or fewer
owners that files an income tax return as a
partnership to take advantage of lower tax rates.
Cooperative (Co-op) an organization in which
people collectively own and operate a business in
order to compete with big competitors.
Professional Service Association: Professional People
(doctors, dentists, lawyers) joined together to form
an organization under professional association laws
treated as corporations for tax purposes. (profit
sharing, benefits, pension plans limited liability)

Advantages
Limited liability investors (shareholders) can
only loose what they have invested. They will not loose
any personal property if the company goes bankrupt.

Skilled Managers - BOD hire qualified

people to run each department.

Transfer of Ownership You can sell

your stock at any time and shares can also be willled.

Greater capital base - Selling stocks helps

Disadvantages
Startup difficulty and costs
Lack of control
Multiple taxation - same profits get taxes
twice.

Lack of secrecy
Lack of personal interest

corporations raise money to put into their business.

Stability
Legal-entity status

Credit limitations

Franchising

Franchisee one who buys a franchise store.

Franchisor one who sells a franchise store (corp)

Define: a business that has signed an

agreement with a franchiser (McDonalds, KFC,

Dunkin Donuts) to use their name, operating
plan, and overall procedures used in the firm
to sell its products or services.
Three components must be present to a
franchise to exist:
A uniform system of operations
Utilization of trademark or service mark
Fee (one time fee as well as monthly fees)

Categories of Franchises

Franchise Trivia
What was the first franchise in US?
Singer Sewing Machine

What popular beverage held the next franchise in 1900?

Cocacola
What was the next to franchise in 1902?

Rexall Drug Store

During 1930-1935 what industry became big in Franchising?
Gasoline (Aammco)
What decade was considered the franchise boom?

1950s (90 percent of the franchise that started during

the franchise boom still exist today.

Franchise Advantages and Disadvantages!

Advantages

Disadvantages

Guidance
Promoted brand name
Proven product
Financial Assistance

Franchise fees
External control
Overdependence
Poor local
reputation can
spread

An innovative Risk taker that is responsible for most of the economic growth in our
country. They often own their own business and/or create their own inventions.
Popular entrepreneurs include Henry Ford, Bill Gates, Jerry Greenfield, Ben Cohen,
and Donald Trump.

An entrepreneur that works for a company.

Art Frye is an entrepreneur. He works for the 3M
Corporation and invented the post it note.

Other BusinessTerms:
Small Business
one that is independently owned and operated
and is no dominant in its field of operation.
A small business does not control a large
market share.
There are sales limits.
Maximum amount of employees 500
Minimum amount of employees 250
Maximum amount of sales.

Small Business cont.

Advantages
Personal gratification
Independence
Financial gain

Disadvantages
Some risks are out of the entrepreneurs control such

as fashion changes, competition, and labor problems.

Irregular income may have zero profit (should count
on not taking profits out of business for at least 3
years)
Long hours hard on family (60-80 hours a week)

Other business terms

cont.
Business Incubator a facility in which young
businesses can share space, costs, services,
and information to help them get started.
Once strong enough, they go out on their own.

Other business terms

cont.
Small Business Administration
Define: an independent agency of the Federal

gvt. Created in l953 to protect the interests of

small business owners: Their four primary area
of assistance are in:
Giving Loans/financial advice and assistance
Management assistance
Women and small business
Minorities and small business