ESSENTIAL STANDARD 2.00 Understand the nature of business. 1

OBJECTIVE 2.01 Understand the types of business ownership. 2

3 MAIN TYPES OF BUSINESS OWNERSHIP 1. Sole Proprietorship 2. Partnership 3. Corporation (4. We will also talk about other forms of ownership) 3

WHICH TYPE OF OWNERSHIP IS THE MOST COMMON IN THE UNITED STATES? 4

Sole proprietorship – 72% Partnership – 20% Corporation – 5% Other – 3% 5

WHICH TYPE OF OWNERSHIP COUNTS FOR THE MOST REVENUE IN THE UNITED STATES? 6

Corporation – 85% Partnership – 8% Sole proprietorship – 5% Other – 2% 7

1. SOLE PROPRIETORSHIP 8

SOLE PROPRIETORSHIP The business is owned and run by one person Owner can manage business OR hire someone to manage it for them Forming the business may vary by states Some people form a business from a hobby or operate a business on a part-time basis! 9

SOLE PROPRIETORSHIP ADVANTAGES For the owner:  The easiest form of business to start and end  Complete control of business  Receives100% of the profit  One time taxation- all income is taxed as a part of your personal income (also a disadvantage). 10

SOLE PROPRIETORSHIP DISADVANTAGES Limited capital Unlimited liability Limited to the lifetime of owner 11

SOLE PROPRIETORSHIP DISADVANTAGES, CONT. Types of liabilities  Employment  Example: Firing of an employing that missed significant days from work  Accidents and injuries on premises  Example: Customer breaks a leg while on business property  Company vehicle-related  Example: Driver runs into a building while driving company’s car  Product-related  Example: Toys easily injure toddlers  Errors and omissions  Example: Employee accidentally damages a customer’s property 12

SOLE PROPRIETORSHIP CONTINUED Sole proprietorship is terminated by decision or life of owner Sources that may be used for investment: Personal, gifts, borrowed, and others may vary 13

BROCHURE! – SOLE PROPRIETORSHIP How many owners? Who manages? How is business started? 3 Advantages 3 Disadvantages Limited or unlimited liability? How is ownership terminated? Sources of investment 14

2. PARTNERSHIP 15

PARTNERSHIP Two or more people to carry on as co-owners of a business for profit. Who manages the partnership is determined by partnership agreement Formation varies by each state 16

FUN FACT! In many states, a partnership can be formed by the verbal agreement of two or more people! 17

FUN FACT! In many states, a partnership can be formed by the verbal agreement of two or more people! It is better to have a partnership agreement (a written agreement among all owners). 18

PARTNERSHIP ADVANTAGES More capital and credit available Work load more evenly shared Losses are also shared 19

PARTNERSHIP DISADVANTAGES Profits are shared Decisions are made jointly Unlimited liability depending on type of partnership 20

PARTNERSHIP CONTINUED Partnerships are formed by an agreement to the conditions of partnership agreement Partnerships are terminated by actions of the partners, bankruptcy, death and/or court order Possible sources for investment: Personals of partner(s), gifts, borrowed, and others may vary 21

TYPES OF PARTNERS Type of Partner Participation in the Business Relationship to the Public Degree of Liability DormantNot activeUnknownUnlimited GeneralActiveKnownUnlimited LimitedNot activeKnownLimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited 22

BROCHURE! – PARTNERSHIP 23 How many owners? 5 kinds of partners Who manages? How is business started? 3 Advantages 3 Disadvantages Limited or unlimited liability? How is ownership terminated? Sources of investment

3. CORPORATION 24

CORPORATION An entity with the legal authority to act as a single individual Ownership  Determined by purchase of stock  A stockholder, or shareholder, owns a ‘piece’ of the company  One share of common stock equals one vote Who may manage a corporation?  Managers, board of directors, and shareholders How are corporations formed?  Filing of an article of incorporation with state government 25

FUN FACT! 26 Name the top 10 largest corporations in the world.

FUN FACT! 27 1.WalMart (Arkansas) 2.Sinopec Group – Asia’s largest oil refiner (Beijing, China) 3.Royal Dutch Shell – Oil (The Netherlands) 4. China National Petroleum – Oil (Beijing, China) 5. Exxon Mobile- Oil (Texas) 6. BP – Oil (London) 7. State Grid- Utilities (Beijing, China) 8. Volkswagen – Motor Vehicles/Parts (Germany) 9. Toyota Motor – Motor Vehicles/Parts (Japan) 10. Glencore- Mining & Crude Oil (Switzerland)

CORPORATION CONTINUED Advantages  Capital easy to obtain  Limited liability for shareholders- you only lose what you’ve invested  Investors don’t have to take part in the day-to-day management & operations  Possibility of unlimited lifetime of business 28

CORPORATION CONTINUED Disadvantages  Double taxation  Corporation pays taxes on profits earned  Investors pay taxes on their individual earnings  Decision making is shared  Government regulations  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. 29

CORPORATION CONTINUED 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 30

BROCHURE- CORPORATION! How many owners? Who manages? How is business started? 2 Advantages 2 Disadvantages Limited or unlimited liability How is ownership terminated? Sources of investment 31

OTHER TYPES OF OWNERSHIP 32

SPECIALIZED PARTNERSHIPS 1. Limited Liability Partnership  Identifies some investors who cannot lose more than the amount of their investment BUT they are not allowed to participate in the day-to-day management of the business 2. Joint Venture A unique business organized by two or more businesses to operate for a limited time and for a specific project. 33

SPECIALIZED CORPORATIONS 1. S-Corporation Favored by small businesses Offers limited liability or a corporation Treats partners as individuals by taxing them once All income is passed through to the owners based on their investment and is taxed on their individual tax returns 34

SPECIALIZED CORPORATIONS 2. Limited liability company (LLC)  Used by small businesses to receive limited liability protection.  Simpler set of organizing and operating requirements than a corporation.  Simple document (much like a partnership agreement) must be developed. No articles of incorporation or bylaws are needed. 35

SPECIALIZED CORPORATIONS 3. Nonprofit Corporation  Benefits the public and is exempt from taxation  Usually work in education, health care, charity, or the arts  Raise funds by receiving grants and donations from individuals and businesses  Government must approve their purpose and operations 36

COOPERATIVES  Formed by a group of individuals or businesses to serve their needs in order to gain bargaining power against bigger businesses  Allows for goods or services to be purchased at a lower price as a group and is owned by the members of the cooperative.  Example: Ocean Spray  Are/Heritage/Meet-Our-Growers.aspx Are/Heritage/Meet-Our-Growers.aspx 37

FRANCHISES  A written contract granting permission to operate a business to sell products and services in a set way  Franchiser- The company that owns the product or service and grants the rights to another business  Franchisee- The company purchasing the rights to run the business  Examples: Dunkin’ Donuts and Jiffy Lube 38

BROCHURE- OTHER TYPES OF BUSINESS OWNERSHIP Describe the 2 types of specialized partnerships Describe the 3 types of specialized corporations Describe cooperative Describe franchise, including an example 39