Read Focus on Real Life on Page 108 in textbook. 1

Understand the nature of business. 2

Understand the types of business ownership. 3

What are the advantages and disadvantages of owning your own business? 4

 What are the main types of business ownership?  What are the characteristics of the main types of business ownership?  Recognize other specialized business ownership forms. 5

◦ Proprietorship ◦ Partnerships  Dormant partner  General partner  Limited liability partner  Secret partner  Silent partner ◦ Specialized corporations  Subchapter/S-corporation  Limited liability company  Nonprofit corporation ◦ Cooperatives ◦ Franchise 6

 Types of ownership in the United States: 1.Sole proprietorship – 72% 2.Partnership – 20% 3.Corporation – 5% 4.Other – 3%  Types of Ownership Revenue 1.Corporation – 85% 2.Partnership – 8% 3.Sole proprietorship – 5% 4.Other – 2% 7

 How many people own a sole proprietorship? ◦ One  Who manages a sole proprietorship? ◦ Owner may manage business, or choose to have someone manage for them, and participate in daily operations and decision-making.  How are sole proprietorships formed? ◦ Easiest form of ownership to start. Varies between states. In North Carolina, register your business name with the appropriate government entity and then get a business license and/or permits. 8

Advantages for OwnerDisadvantages for Owner  Easy to form  Complete control of business  Recipient of 100% of the profit  One time taxation  Limited capital  Unlimited liability  Limited lifetime 9

 How is a sole proprietorship terminated? ◦ Decision or life of owner  What are some sources of funding that may be used for investment? ◦ Personal, gifts, borrowed, and others may vary 10

 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.  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. 11

Advantages for Partners Disadvantages for Partners  Easy to form  More capital and credit available  Work load more evenly shared  Losses are also shared  Unlimited liability  Limited lifetime – if partner leaves or dies  Profits are shared  Decisions are made jointly  Hard to add other partners 12

 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.) 13

Type of Partner Participation in the Business Relationship to the Public Degree of Liability General*ActiveKnownUnlimited DormantNot activeUnknownUnlimited LimitedNot activeKnownLimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited 14

 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  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. 15

Advantages of Corporations Disadvantages 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  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. 16

 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 17

18 TypeSole ProprietorshipPartnershipCorporation Owner(s)One personTwo or more people One or more shareholders (stockholders), who have one vote per share Manager(s) May be owner. Owner participates in all day-to-day operations. Determined by partnership agreement; may be one or more partners. Managers, board of directors, and shareholders (stockholders) Formation 1.Begin buying and selling goods or services 2.May vary by state With a partnership agreement. Varies by state Filing of an article of incorporation with state government Advantages 1.Easy to form 2.Complete control of business 3.Recipient of 100% of the profit 4.One time taxation 1.Easy to form 2.More capital and credit available than a sole proprietorship 3.Work load shared 4.Losses shared 1.Capital easy to obtain 2.Limited liability for shareholders 3.Unlimited lifetime 4.Can invest without managing day-to- day operations 5.Decision-making is shared Disadvantages 1.Limited capital 2.Unlimited liability 3.Limited lifetime of owner 1.Profits shared 2.Decisions made jointly 3.Unlimited liability depending on partnership type 4.Limited lifetime 5.Difficult to add partners 1.Double taxation: profits and earnings 2.Government regulations 3.More difficult to form 4.Operations controlled by shareholders (stockholders) and board of directors instead of original owner(s)

 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. 19

 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 businesses operate as Limited liability company (LLC)? ◦ Used by small businesses to receive limited liability protection. No articles of incorporation or bylaws are needed.  Who benefits from services of nonprofit corporation? ◦ Benefits the public and is exempt from taxation. May get grants from the individuals or businesses to raise funds. 20

 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)  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 21