1. Understand the types of business ownership.
Objective 2.01
Understand the types of business ownership.

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

3. Sole Proprietorship Business owned by one person.
Formation may vary by states
Business owned by one person.
Manager may manage business.

4. Sole Proprietorship Advantages
For owner
Easy to form
Complete control of business
Recipient of 100% of the profit
Low taxes

5. Sole Proprietorship Disadvantages
Limited capital
Pay for everything yourself
Lack of business skills
Limited to the lifetime of owner
Liability is for which anything a company owes.

6. 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

7. 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
How is a sole proprietorship terminated?
Decision or life of owner
What are some sources possible for investment?
Personal, gifts, borrowed, and others may vary
What are some local examples?
Answers will vary.

8. Partnerships
Business owned by two or more persons who share the risks and rewards
Formation varies by each state
Association of two or more people to carry on as co-owners of a business for profit.
Who may manage the business?
Determined by partnership agreement

9. 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

10. 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

11. Partnership Disadvantages
Profits are shared
Decisions are made jointly
Share unlimited legal and financial liability
Disagreement between partners

12. Participation in the Business Relationship to the Public
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
Limited
Secret
Silent

13. 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
Who are the managers of corporations?
Managers, board of directors, and shareholders
How is corporations formed?
Filing of an article of incorporation with state government

14. Corporation Advantages Capital easy to obtain (sell stock or bonds)
Limited liability for shareholders
Indefinite lifetime

15. 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

16. 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
How is the life of a corporation terminated?
Determined by charter or unlimited lifetime
What is the source of investment for corporations?
Purchase of stocks

17. 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
Why do small businesses operate as LLC?
Used by small businesses to receive limited liability protection.
Limited liability company (LLC)
Small businesses use LLC to receive limited liability protection.
Who benefits from services of nonprofit corporation?
Benefits the public and is exempt from taxation.

18. Types of Corporations Domestic – chartered in a specific state
Examples 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

19. Types of Corporations Public Private
Established for a governmental purposes
Examples
National Science Foundation
Export-Import Bank of the United States
Private
Established by individuals for business or charitable purposes.
IBM
American Cancer Society

20. Types of Corporations Public Private
Stock available to general public through stock markets.
Private
Stock owned internally by employees of company.

21. 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
What is a franchise?
Franchise grants permission to sell products and services to another business.
What are some examples of business-format franchise?
Jackson-Hewitt Tax Services
Burger King
Firestone Tires
What some examples of product-trade franchise?
Examples
Marc Jacobson Toyota
Bobby’s Appliance store
Local stores selling shell gas

22. 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

23. Franchise Advantages Disadvantages 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