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Forms ofBusiness
Ownership
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Learning Goals
1 What are the advantages and disadvantages of the sole proprietorship form of business organization?
2 What are the advantages of operating as a partnership, and what downside risks should partners consider?
3 How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?
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Sole proprietorships
Partnerships
Corporations
Business Ownership
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Sole Proprietorships
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What are the advantages and disadvantages of the sole proprietorship form of business organization?
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sole proprietorship
A business owned ,operated, managed and often financed by one individual; the business and the owner are one and the same in the eyes of the law
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Sole Proprietorships
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AdvantagesAdvantages
Easy and inexpensive to form
Profits go to the owner Direct control of the
business Freedom from government
regulations No special taxation Ease of dissolution
DisadvantagesDisadvantages
Unlimited liability Difficulty raising capital Limited managerial
expertise Trouble finding
qualified employees Personal time commitment Unstable business life Losses are owner’s
responsibility
Sole Proprietorships
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CONCEPT check
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What is a sole proprietorship?
Why is this a popular form of business organization?
What are the drawbacks to being a sole proprietor?
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Partnerships
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What are the advantages of operating as a partnership, and what downside risks should partners consider?
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partnership
An association of two or more individuals who agree to operate a business together for profit.
limited partnerships
have at least one general partner who controls the company's day-to-day operations and is personally liable for business debts, a limited partner's personal liability is capped at the amount of his or her investment
Partnerships
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Partnerships
AdvantagesAdvantagesAdvantagesAdvantages
Ease of formation Availability of capital Diversity of skills and
expertise Flexibility No special taxes Relative freedom from
government control
Unlimited liability Potential for conflicts
between partners Complexity of profit-sharing Difficulty exiting or
dissolving partnership
DisadvantagesDisadvantagesDisadvantagesDisadvantages
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CONCEPT check
How does a partnership differ from a sole proprietorship?
Describe the three main types of partnerships and explain the difference between a limited partner and a general partner.
What are the main advantages and disadvantages of a partnership?
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Corporations
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How does the corporate structure provide advantages and disadvantages to a company, and what are the major types of corporations?
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corporation
A legal entity with an existence and life separate from its owners, who are not personally liable for the entity’s debts.
A corporation is chartered by the state in which it is formed and can own property, enter into contracts, sue and be sued, and engage in business operations under the terms of its charter.
Corporations
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The 10 Largest U.S. Corporations
1. Wal-Mart Stores
2. ExxonMobil
3. Chevron Texaco
4. General Motors
5. ConocoPhillips
6. General Electric
7. Ford Motor
8. Citigroup
9. Bank of America Corp.
10. AT&T
Ranked by 2007 Sales
Source: “The 2008 Fortune 500,” Fortune, http://money.cnn.com/magazines/fortune
(April 2008)©Time Inc. All rights reserved.
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Articles of Incorporation
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Name of corporation
Company’s goals
Types of stock and number of shares issued
Life of the corporation
Minimum investment by owners
Methods for transferring shares
Address of the corporate office
Names and addresses of the first board of directors
Exhibit 4.4
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Corporations
AdvantagesAdvantagesAdvantagesAdvantages
Limited liability Ease of transferring
ownership Unlimited life Tax deductions Ability to attract
financing
Double taxation of profits
Cost and complexityof formation
More government restrictions
DisadvantagesDisadvantagesDisadvantagesDisadvantages
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Types of Corporations
C CorporationC Corporation A conventional or basic corporate form of organization
A conventional or basic corporate form of organization
S CorporationS Corporation A hybrid entity that is organized like a corporation, but taxed like a partnership
A hybrid entity that is organized like a corporation, but taxed like a partnership
Limited LiabilityCompany (LLC)
Limited LiabilityCompany (LLC)
A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation
A hybrid organization that offers the same liability protection as a corporation but may be taxed as either a partnership or a corporation
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CONCEPT check
What is a corporation? Describe how corporations are formed and structured.
Summarize the advantages and disadvantages of corporations. Which features contribute to the dominance of corporations in the business world?
Why do S corporations and limited liability companies (LLCs) appeal to small businesses?
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