3. The Three Primary Forms of Business Organizations
Sole proprietorships
Partnerships
Corporations

4. Comparison of Sole Proprietorships, Partnerships, and Corporations
Source: U.S. Bureau of the Census, Statistical Abstract of the U.S. 2003, (Washington, D.C.: U.S. Government Printing Office, 2004), p. 459.

5. Sole Proprietorships
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

6. Advantages and Disadvantages of the Sole Proprietorship
Ease and cost of formation
Secrecy
Distribution and use of profits
Control of the business
Government regulation
Easy to close the business
Disadvantages
Unlimited liability
Limited sources of funds
Limited skills
Lack of continuity
Lack of qualified employees

7. Partnerships
A partnership is an association of two or more persons who carry on as co-owners of a business for profit.
Represents just 8 percent of U.S. businesses
Accounts for only 10 percent of sales
Accounts for 19 percent of income

8. Types of Partnerships General partnership: Limited partnership:
Partners completely share in the management of the business
Limited partnership:
One general partner with unlimited liability and one limited partner with limited liability
Joint venture:
A partnership established for a specific project or a limited time

9. Issues and Provisions in Articles of Partnership
Name, purpose, location
Duration of the agreement
Authority and responsibility of each partner
Character of partners (i.e., general or limited, active or silent)
Amount of contribution from each partner
Division of profits or losses
Salaries of each partner
Source: “Partnership Agreement,” State of New Jersey, (accessed June 6, 2006).

10. Issues and Provisions in Articles of Partnership
How much each partner is allowed to withdraw
Death of partner
Sale of partnership interest
Arbitration of disputes
Required and prohibited actions
Absence and disability
Restrictive covenants
Buying and selling agreements
Source: “Partnership Agreement,” State of New Jersey, (accessed June 6, 2006).

11. Advantages and Disadvantages of Partnerships
Ease of organization
Availability of capital and credit
Combined knowledge and skills
Decision making
Regulatory controls
Disadvantages
Unlimited liability
Business responsibility
Life of the partnership
Distributions of profits
Limited sources of funds
Taxation

12. Corporation
Legal entity, created by the state, whose assets and liabilities are separate from its owners

13. Types of Corporations Domestic Foreign Alien
Does business in the state in which it is chartered
Foreign
Does business in states other than the state where it is chartered
Alien
Does business outside of the nation where it is incorporated

14. Types of Corporations Private Public
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

15. Types of Corporations Quasi-public Nonprofit
Owned and operated by a federal, state, or local government
Nonprofit
Focus is on providing a service not making a profit

16. The Largest U.S. Corporations, Arranged by Revenues

17. The Largest U.S. Corporations, Arranged by Revenues

18. The Elements of a Corporation
The Board of Directors
Inside directors
Outside directors
Stock Ownership
Preferred stock
Common stock

19. Advantages and Disadvantages of Corporations
Limited liability
Transfer of ownership
Perpetual life
External sources of funds
Expansion potential
Disadvantages:
Double taxation
Forming a corporation
Disclosure of information
Employee-owner separation

20. Other Types of Ownership
Joint Ventures
S-corporations
Limited Liability Companies (LLC)
Cooperatives (Co-op)

21. How Do Corporations Grow?
Expanding operations
New product development
Market expansion
Mergers
Acquisitions
Leveraged buyouts (LBO)

22. Merger
When two companies (usually corporations) combine to form a new company
Horizontal
Vertical
Conglomerate

23. Acquisition
When one company purchases another, generally by buying most of its stock
The acquired company may become a subsidiary of the buyer

24. The Jargon of the Merger, Acquisition, and LBO
The Corporate Raider
The Tender Offer
The Poison Pill
Shark Repellant
The White Knight

25. Leveraged Buyout (LBO)
A group of investors borrow money from banks and other institutions to acquire a company (or a division of one)
The assets of the purchased company are used to guarantee repayment of the loan
Did You Know?
Worldwide LBOs are on the decline. More LBOs occur in Europe than in U.S.

26. Major Mergers and Acquisitions 2000-2006

27. Solve the Dilemma
What are some of the advantages and disadvantages of Thomas and Bryan forming a corporation?
What are the advantages and disadvantages of their forming a partnership?
Which organizational form do you think would be best for Thomas and Bryan’s company and why?

28. Explore Your Career Options
Are salary and advancement opportunities the most important considerations in evaluating a job offer?

29. Additional Discussion Questions and Exercises
Which form of ownership is the most popular in the United States? Which form accounts for the highest percentage of total business sales?
What is meant by “double taxation” for corporate income?
What is the difference between a foreign corporation and an alien corporation?

30. Additional Discussion Questions and Exercises
What is the difference between quasi-public corporations and nonprofit corporations?
In a leveraged buyout (LBO), what assets or collateral do the investors use to guarantee repayment of the loan to the banks or other institutions from which they borrowed money?

31. Chapter 5 Quiz
A corporation doing business in the state in which it is chartered is known as
an alien corporation
a domestic corporation
a foreign corporation
a quasi-public corporation.
Which one of the following is considered an advantage of the sole proprietorship form of organization?
ease of business dissolution
unlimited liability
limited sources of funds
limited life of the business

32. Chapter 5 Quiz
At one time, the Ford family owned all of the stock in the Ford Motor Company. Such family ownership of a corporation is typical of a
public corporation
quasi-public corporation
private corporation
nonprofit corporation.
Owners of common stock
have a claim to any profits before any stockholders do
carry a cumulative claim to dividends.
have no say in running the company
elect the board of directors

33. Multiple Choice Questions about the Video
Auntie Anne borrowed $6,000 to buy a ______
store
concession stand
Pizza oven
Pretzel recipe
Television advertisement
How many stores does Auntie Anne’s Pretzels have in the U.S.?
200
100
550
850
325