Bus 10 Notes - 7A Forms of Ownership

4-1

Introduction to Business
Forms of Business Ownership

Types of U.S. Businesses

4-2

Sole Proprietorships

4-3

A sole proprietorship is a
business owned and
operated by one
individual
Common examples include
Many restaurants
Barber shops
Flower shops
Dog kennels
Independent grocery
stores

Bus 10 Notes - 7A Forms of Ownership

Advantages and Disadvantages

of Sole Proprietorship
Easiest and
cheapest
Few government
regulations
Complete Control
Get all earned
income
No special taxes

4-4

Supply all talents

Death = dissolution
Financing with own
resources
Unlimited liability

Sole Proprietorship
& Unlimited Liability

Classic Video

4-5

4-6

(10 minutes)
What is a Corporation? (ca. 1949)

Bus 10 Notes - 7A Forms of Ownership

Partnerships

4-7

A business jointly
owned by 2 or more
people.
Some large ones exist
such as the big
accounting firms

Advantages/Disadvantages of
General Partnership
Relatively easy &
inexpensive
Shared responsibility
& talent
Financing easier
Continuity not issue
No special taxes

4-8

More complex than

sole proprietorship
Shared decisions
Disputes among
partners
Unlimited liability
including for partner
actions
Share profits

Partnership Agreement

4-9

Cash/Contribution of partners
Division of income/loss
Partner responsibilities
Conditions for sale
Conditions for dissolving
Conditions for settling disputes

Bus 10 Notes - 7A Forms of Ownership

Limited Partnership

4-10

General partner(s) run business and

responsible for liability
Limited partner(s) have no involvement;
losses = investment
Limited

Limited

Partner

Partner
General
Partner

Limited

Limited

Partner

Partner

Corporation

Is a legal entity, created by

the state, whose assets and
liabilities are separate from
its owners
Can enter into binding
contracts
Can buy/sell property
Can sue/be sued
Is responsible for all
actions
Is taxed

Largest U.S. corporations in

revenues

Board of Directors

4-11

4-12

Shareholders elect Board

of Directors
Outside group of people
Oversees major policies &
decisions
Hires/Evaluates Officers
Approves dividends

Bus 10 Notes - 7A Forms of Ownership

Advantages & Disadvantages

of Corporation
Limited Liability
Financial
Resources
Specialized
management
Continuity &
Transferability

4-13

Goals of
management &
shareholders differ
Costly to set up
Regulation &
Govt Oversight
Double taxation

Some Important Types of Corporations

4-14

Private (Closely held)

Corporation owned by only one person or a
few people closely involved in its
management

Public
Corporation whose stock anyone may buy,
sell, or trade. Traded on a stock exchange

Non-profit
Focus is on providing a service not making a
profit; have special tax advantages.

Forms of Ownership Exercise

Determine the best form of ownership.

Four 15 is a tax preparation service. The owner is a retired accountant who wants
to run the business for the next 10 years. She will probably have 2 5
employees and would like to grow the business at a slow but steady pace.
Beer Vendor is a company that makes and distributes beer vending machines to
bars and nightclubs. The vending machines help bar owners maximize their
income during peak times. The business will have national sales reps that are
independent agents. There are plans to expand internationally first to western
Europe, then to China and the Middle East.
Green Eggs and Ham (www.greeneggsandham.com) is a fast-growing online food
store that specializes in organic dairy, meat, fruits and vegetables. The business
is growing faster than expected. It has been difficult to keep up with hiring as
many people as needed.
Forever Young is a healthcare provider targeted to aging baby boomers. It is
growing quickly as the boomers need for health services accelerates. Part of the
strategy is to hire nurses and licensed practitioners to keep costs down. In
addition, there is a significant online resource at www.foreveryoung.com
including personalized information and programs to encourage healthy practices
and preventive measures. If the business continues to grow, there may be
opportunities for international expansion.

Bus 10 Notes - 7A Forms of Ownership

Changing Ownership

4-16

Merger
Acquisition
Leveraged BuyOut (LBO)

Motives Behind
Mergers & Acquisitions

4-17

1) Gain complementary products

2) Attain new markets or distribution
channels
3) Realize economies of scale

The Jargon of Mergers & Acquisitions

4-18

The Corporate Raider

The Tender Offer
Hostile Takeover
Shark Repellant or
the Poison Pill
The White Knight