Business OwnershipMarketing and Business

MB 7

Unit 1

Legal Forms of Bus. Ownership

Sole Proprietorship Partnership Corporation

Sole Proprietorship

Business owned by one person– That person receives all of the profits from the

business– That person takes all of the risks associated with

the business

Often found in service, retail trade, and construction business.

Characteristics (Sole Proprietorship)

Usually small, employing fewer than 50 people

Owner often does all of the work her/himself Often chosen for businesses that can easily

be managed by the owner or by someone the owner hires

Partnership

Defined as a business that is owned by two or more persons

– i.e. Procter & Gamble

Used in most businesses1. Often in bus. that offer more than one good or

service

2. Often used by professionals

Purpose of Forming A Partnership

1. Capital

2. Experience

3. Abilities of two or more people

Partnerships (General Info.)

Parnters share risk of loss and chance of profit

Requirements for forming a partnership varyi from state to state

Partners should have an attorney prepare partnership agreement

Types of Partnerships

General– Simplest, most common form– All partners are liable for business’s losses

Limited– Permits a partner to invest in a bus. but have

limited liability– Ways to limit partnership

Financial reponsability Time/desire to manage

Corporation

“Artificial being, invisible, intangible, and existing only in contemplation of law” – 1918 US Supreme Court

Forming a corporation is like creating an independent entity that will be treated as a person with legal rights, duties, and powers.

Corporation

Corporations Can…

Borrow or loan money Buy and sell goods Make contracts Sue or be sued Perform other business activities

Corporation Charter/Certificate

Referred to as the corporation’s birth certificate

To obtain a charter, bus. file an “Article of Incorporation” which includes:– Bus.’s name– Purpose– Location– Amount of stock to be issued

Individual Profit from Corporation

Buy Stock Represent ownership in the corporation Stockholders exist independently

Risk only amt. of investment Other things can’t be taken by creditors to pay debt

Limited liability Company

New form of business Hybrid of partnership & corporation Owners shielded from personal liability Profit & loss go directly to the owner w/out

taxation

Percent Bus. Ownership

Advantages of Sole Proprietorship

Easy to open Profits for the owner Pride and satisfaction of ownership Privacy Control and flexibility Tax Advantages Easy to close

Disadvantages of Sole Proprietorship

Unlimited liability Limited capital Limited capabilities Uncertain life

Advantages of General Partnership

Easy to start Increased capital Combined capabilities Increased goodwill Decreased competition Reduced expenses Tax advantages

Disadvantage of General Partnerships

Unlimited financial liability Limited capital Difficult to share profits Disagreements Difficult to end Uncertain life

Advantages of Corporation

Limited liability Easier to raise capital Unlimited life Easy to transfer ownership Skilled personnel – Shared management Financial power

Disadvantages of Corporations

Difficult to form and operate Separate owners and managers More complex requirements Required by law to send reports and inform

stockholders of meetings, corp. transactions, and important bus. Matters

Taxation Profits are taxed twice

Ways for a Corporation to Grow

MergerA↔B=A

Revco ↔ SuperX = Revco

ConsolidationsA↔B=C

Lockheed↔Martin Marietta=Lcokheed Martin

Expansions

Franchising

A method of distributing goods and services through a licensing arrangement between the franchiser and the franchisee according to the contract agreement (the franchise).

Ex. McDonald’s, Wendy’s, Midas, Ford, Century 21, etc.