Section 5.2 Forms of Business Ownership

Section 5.2 Forms of Business Ownership

The Three Major Forms of Ownerships are

• Proprietorship

• Partnership

• Corporation

Proprietorship

• A business owned and run by just one person

• It is the easiest form of business to start and end

• Very few legal requirements

• Gives the owner sole control over decisions

• Owner receives all the profits (and losses)

• Failure of a proprietorship offers no insurance against personal or business debt collection

Partnership

• A business owned and controlled by two or more people and have an agreement between each other

• It is easy to start

• Decisions are shared between the owners

• Partners share profits (and losses)

• Each partner is responsible for debt incurred if a business should fail

Corporation

• Is a separate legal entity formed by documents filed with a state

• It is owned by one or more shareholders and managed by a board of directors

• Most corporations have several owners who invest by purchasing stock

• Have more legal requirements

• Not all owners have a say in decisions

• No access to profits unless approved by the board of directors

• Corporations protect the liability of stockholders only to the amount they have invested

Poll

The safest form of business as an owner is

• proprietorship

• partnership

• corporation

Multiple Choice

The largest number of business in the U.S. are

• Proprietorship

• Partnership

• Corporation

Choosing a Proprietorship

• They prefer the freedom of working for themselves

• Want total control of decisions

• Most start as a hobby or on a part-time basis

• Provides a tax advantage for the owner

Choosing a Partnership

• Can be formed by a verbal agreement

• Best to have a partnership agreement, which is a written agreement between all owners. It typically identifies the business name, investments, and contributions from each partner

• Advantages include two or more owners and shared decisions

• Good for business that have shared owner ideas and interests

• Same liabilities of a proprietorship

Choosing a corporation

• Subject to more laws

• More difficult to form

• Treated as a separate entity

• Must follow the corporation laws of it's state

• Must have Articles of Incorporation, which is a written legal document that defines ownership and operations of the business (corporate bylaws)

• Has a Board of Directors, who will make the major policy and financial decisions

• Sells stock as ownership of the business

Poll

The most complex and difficult type of business owner ship is

• Proprietorship

• Partnership

• Corporation

Other forms of ownership

• Limited Liability Partnership difficult and expensive to form. Identifies who and how much investors COULD lose.

• Joint Venture is two or more business, operating for a limited time, and for a specific project

• S Corporation is a form favored by small businesses. Offers protection of a corporation, but all profits goes to owner and is taxed on individual basis.

• Limited Liability Company (LLC) provides liability protection for owners. Combines the advantages of a corporation and a partnership. Simpler form of business than corporation.

• Nonprofit Corporation is a group of people who join to do an activity that benefits the public. Free from corporate taxes. Government must approve their purpose and organization

Cooperatives and Franchises

• Cooperatives are owned by members, serves their needs, and is managed in their interest

• Franchise is a written contract granting permission to operate a business to sell products and services in a set way

• The company that owns the product or service is a franchiser (McDonald's, Jimmy John's)

• The company or person purchasing the rights to run the business is the franchisee

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Multiple Choice

The form of ownership that gives one person sole control over all business decisions is the

• Proprietorship

• Partnership

• Corporation

• Franchise

Multiple Choice

All investors in a general partnership have full liability for the debts of the business

• True

• False

Poll

The people who make the major policy and financial decisions in a corporation are the

• investors

• board of directors

• managers

• owners

Poll

A special form of business organization that combines advantages of a corporation and a partnership is a

• franchise

• nonprofit corporation

• cooperative

• limited liability company