Essential Standard 2.00 UNDERSTAND THE NATURE OF BUSINESS. 1

Objective 2.01 UNDERSTAND THE TYPES OF BUSINESS OWNERSHIP. 2

Types of Business Ownership Which type of ownership is the most common in the United States? Sole Proprietorship – 72% Partnership – 20% Corporation – 5% Cooperative - less than 3% Franchise Which types of ownership counts for the most revenue in the United States? Sole Proprietorship – 5% Partnership – 8% Corporation – 85% Cooperative – less than 2% Franchise 3

Sole Proprietorship  How many people own a sole proprietorship?  One (1) owner  Who manages a sole proprietorship?  Owner may manage business, or choose to have someone manage for them, and participates in daily operations and decision making  How are sole proprietorships formed?  SP are the easiest for of ownership to start. Varies between states, in NC, register your business name with appropriate government entity and then get a business license and/or permit. 4

Sole Proprietorship Advantages & Disadvantages Advantages for Owner  Easy to form  Complete control of business  Recipient of 100% of the profit  One time taxation Disadvantages for Owner  Limited capital  Unlimited liability  Limited lifetime 5

Sole Proprietorship continued  How is a sole proprietorship terminated ?  Decision or life owner  What are some sources of funding that may be used for investment?  Personal, gifts, borrowed, and other ways may vary  What are some local examples ?  Answer will vary 6

Partnership  How many people are considered for a partnership ownership?  Association of two or more people to carry on as co-owners of a business for profit.  Who manages a partnership?  Determined by partnership agreement. It may be one or more partners, or someone that has been hired to manage the day-to- day operations. 7

Partnership  How is a partnership formed?  With a partnership agreement. Some states only require a verbal agreement but it is better to have a written agreement. Most states also require a business name and the name of each partner be registered. In North Carolina, partners must choose a name for their business, register the business name with the appropriate government entity, sign a partnership agreement, and then get a business license and/or permits. 8

Partnership Advantages & Disadvantages Advantages for Partners  Easy to form  More capital and credit available  Work load more evenly shared  Losses are also shared Disadvantages for Partners  Unlimited liability  Limited lifetime – if partner leaves or dies  Profits are shared  Decisions are made jointly  Hard to add other partners 9

Partnership continued  How is a partnership terminated?  Partnerships are terminated by actions of the partners, bankruptcy, death, and/or court order.  What are some sources of funding that can be used for investment by partners?  Personals of partner(s), gifts, borrowed, and others may vary  What are some examples?  South Railroad Limited Partnership  Eden Limited Partnership  (Law and accounting firms are usually good examples for local partnerships.) 10

Specialized Partnerships  Why would an investor choose a limited liability partnership ?  If an investor does not want to lose more than the amount of their investment and does not care to be involved in every day operations.  Why would businesses choose to enter into a joint venture ?  When the businesses only want to be partners for a limited time and for a specific reason/project.  What is meant by the saying “by proof of existence”?  This is used for partnerships or joint ventures that don’t have a formal agreement and just conduct business together. In this case, partners may or may not be aware of their formed partnership. 11

Types of Partners *Every partnership must have at least one general partner Type of Partner Participation in the Business Relationship to the Public Degree of Liability General*ActiveKnownUnlimited DormantNot activeUnknownUnlimited LimitedNot activeKnownLimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited 12

Corporation  Who owns a corporation?  The stockholder (shareholders).  An entity with the legal authority to act as a single person.  How is ownership determined?  Determined by purchase of stock  A stockholder, or shareholder, owns a ‘piece’ of the company  One share of common stock equals one vote 13

Corporation  Who manages a corporation?  Managers, board of directors, and shareholders  How are corporations formed?  Filing of an article of incorporation with state government. The business must create corporate bylaws, name a board of directors, and issue shares of stock. In North Carolina, the business must choose a name, choose board of directors, file articles of incorporation, create bylaws, hold a meeting, issue stock, obtain licenses, determine tax obligations, and open a bank account for the business. 14

Corporation Advantages & Disadvantages Advantages of Corporations  Capital easy to obtain  Limited liability for shareholders  Can invest without having to manage day-to-day operations  Possibility of unlimited lifetime of business  Decision-making is shared Disadvantages of Corporations  Double taxation: profits and earnings  Subject to more laws than other types of ownership  More difficult to form  Operations controlled by shareholders and board of directors instead of original owner(s) Example: 10 years after founding Apple, Steve Jobs was fired by the board of directors. 15

Corporation continued  How is a corporation terminated?  Corporation may have unlimited life. Determined by charter or articles of dissolution, and must be approved by the majority of the board of directors and/or stockholders (shareholders )  What is the source of investment for corporations ?  Purchase of stock shares  What are some examples?  Walmart, Microsoft, Ford Motor Company, Coca- Cola, Delta 16

Corporation continued  Franchise  Why would an individual choose franchise as a form of business?  A franchise grants permission to sell products and services to another business. It offers brand/product recognition and a proven format of business that is successful.  What are some examples of franchises?  Jackson-Hewitt Tax Services  Burger King  Firestone Tires  Local stores selling shell gas 17

Specialized Corporations What is special about an S-corporation ? – This type of corporation treats each partner/owner as an individual by taxing them only one time. Why would a small business operate as an limited liability company (LLC) ? – Used by small businesses to receive limited liability protection. No articles of incorporation or bylaws are needed. Only taxed once, know as pass through taxation Who benefits from services of a nonprofit corporation ? – Benefits the public and is exempt from taxation. May get grants from the individuals or businesses to raise funds. 18

Cooperatives & Franchises  Cooperatives or Co-op  Why would an individual or business choose to be part of a cooperative?  Formed by a group of individuals or businesses to serve their needs in order to gain bargaining power against bigger businesses. Also, allows for goods or services to be purchased at a lower price as a group and is owned by the members of the cooperative.  What are some examples of a cooperative?  Agricultural cooperatives, housing cooperatives, utility cooperative, credit unions (cooperative banking) 19

Cooperatives & Franchises  Why would an individual choose franchise as a form of business?  A franchise grants permission to sell products and services to another business. It offers brand/product recognition and a proven format of business that is successful.  What are some examples of franchises?  Jackson-Hewitt Tax Services  Burger King  Firestone Tires  Local stores selling shell gas 20