2. 1 Chapter 7 Business Ownership and Organization 9/12/2015 © ©1999 South-Western College Publishing

3. 2 Legal Forms of Business Proprietorships Partnerships Corporations

4. Forms of Business Organizations Exhibit 1 Proprietorships (74.0%) Partnerships (7.4%) Corporations (18.6%) PERCENTAGE OF U.S. FIRMS Proprietorships (6.0%) Partnerships (4.4%) Corporations (89.7%) PERCENTAGE OF TOTAL BUSINESS RECEIPTS

5. 4 What is the simplest business form? Sole Proprietorship © ©1999 South-Western College Publishing

6. 5 What is a Sole Proprietorship? A firm owned by one person who alone bears the responsibility and unlimited liability of the firm © ©1999 South-Western College Publishing

7. 6 How do I establish a Sole Proprietorship? Be able to show that you are attempting to make a profit Give your business a name File Schedule C with taxes © ©1999 South-Western College Publishing

8. 7 What are the advantages of a Sole Proprietorship? Simplicity and ease of organization Can work it part time Total control over decisions Work with family members Little government regulation

9. 8 What are the disadvantages of a Sole Proprietorship? The proprietor & the firm are legally inseparable Proprietor has unlimited liability Limited funds for expansion Limited life Benefits of specialization not realized

10. 9 What is Unlimited Liability? The owners personal wealth is subject to appropriation to pay off the firm’s debt © ©1999 South-Western College Publishing

11. 10 What is a Partnership? A firm owned by two or more persons who each bear the responsibilities and unlimited liabilities © ©1999 South-Western College Publishing

12. 11 What are the advantages to a Partnership? Ease of organization Shared financial support Greater specialization possible Limited regulation © ©1999 South-Western College Publishing

13. 12 What are the disadvantages of a Partnership? Disagreements All partners 100% liable Partners legally inseparable from the business Death of a partner ends the agreement

14. 13 Want to go into your own business? http://www.sba.gov http://www.inc.com http://www.sbaer.uca.edu/ http://www.isquare.com © ©1999 South-Western College Publishing

15. 14 What is a Corporation? A firm whose legal identity is separate from the people who own shares of stock © ©1999 South-Western College Publishing

16. 15 What are the advantages of a Corporation? It is a separate legal being from its owners, giving owners limited liability Permanent entity Benefits of specialization Easier to raise funds for expansion

17. 16 What is a Stock? Ownership in a corporation represented by shares that are claims on the firm’s assets and earnings © ©1999 South-Western College Publishing

18. 17 Who is a Stockholder? A person owning at least one share of stock in a corporation © ©1999 South-Western College Publishing

19. 18 What is an advantage of selling stock? The money never need be paid back © ©1999 South-Western College Publishing

20. 19 What is the disadvantage of selling stock? The original owners can lose control over the corporation if too much stock is sold © ©1999 South-Western College Publishing

21. 20 What is a Dividend? That part of a corporation’s net income that is paid out to its stockholders © ©1999 South-Western College Publishing

22. 21 What is Common Stock? Stockholders can vote according to their share of outstanding stock © ©1999 South-Western College Publishing

23. 22 How does Preferred Stock differ from Common Stock? 1. It does not carry voting privileges 2. Dividend yield is fixed 3. First claim on dividends © ©1999 South-Western College Publishing

24. 23 Find out more about investing! http://www.etrade.com http://www.morningstar.net © ©1999 South-Western College Publishing

25. 24 What is a Corporate Bond? A corporate IOU specifying loan duration and the interest rate © ©1999 South-Western College Publishing

26. 25 What is the advantage of selling bonds? Because no ownership comes with the bond the corporation runs no risk of losing control © ©1999 South-Western College Publishing

27. 26 What is the disadvantage of selling bonds? The money borrowed has to be paid back © ©1999 South-Western College Publishing

28. 27 What are the downsides to a Corporation? Harder to organize Double taxation More government regulation Separation of ownership and management © ©1999 South-Western College Publishing

29. 28 What is a Sole Proprietorship? What is a Partnership? What is a Corporation? What is a Stock? What is a Dividend? What is a Corporate Bond? What is a Hostile Takeover?