POB 2.01Outline and Review

Understanding the Types of Business Ownership

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I. Main Types of Business Ownership Table

Sole Proprietorship Partnership Corporation

Owner(s) One person Two or more people One or more shareholders (stockholders), who have one vote per share

Manager(s) May be owner. Participate in all day-to-day operations

Determined by partnership agreement; may be one or more partners

Managers, board of directors and shareholders

Formation 1. Begin buying and selling goods and services

2. May vary by state

With a partnership agreement. Varies by state

Filing of an article of incorporation with state government

Sole Proprietorship Partnership Corporation

Advantages 1. Easy to form2. Complete control of

business3. Recipient of 100% of

the profit4. One time taxation

1. Easy to form2. More capital and

credit available than a sole proprietor ship

3. Work load shared4. Losses shared

1. Capital easy to obtain

2. Limited liability for shareholders

3. Unlimited lifetime4. Can invest without

managing day-to-day operations

5. Decision-making is shared

Disadvantages 1. Limited capital2. Unlimited Liability3. Limited lifetime of

owner

1. Profits shared2. Decisions made

jointly3. Unlimited liability

depending on partnership type

4. Limited lifetime5. Difficult to add

partners

1. Double taxation: profits and earnings

2. Government regulations

3. More difficult to form

4. Operations controlled by shareholders and board of directors

Sole Proprietorship Partnership Corporation

Termination Decision or life of owner Actions of the partners, bankruptcy, death, and/or court order

May have unlimited lifetime. If needed, determined by charter or article of dissolution

Source(s) of investment Personal, gifts, borrowed, and others may vary

Personals of partner(s), gifts, borrowed, and others may vary

Purchase of stocks

Examples of business Ownership

Answers will vary • South Railroad Limited Partnership

• Eden Limited Partnership

• Bank of America Corporation

• Lowe’s Home Improvement Store

Examples of liabilities 1. Employment: Manager fires an employee that missed significant days from work2. Accidents and injuries on premises: Costumer breaks a leg while on business

property3. Accidents and injuries on premises: Driver runs into a building while driving

company’s car4. Product-related: Toddlers are easily injured by a sharp edge of a toy5. Errors and omissions: Employee accidently damages a costumer’s property6. Directors and officers: One food ingredient that may cause cancer is intentionally

omitted from package

II. Other types of Business Ownership

A. Types of PartnershipsA. Dormant partnerB. General partnerC. Limited liability partnerD. Secret partnerE. Silent partner

B. Specialized corporationsA. Subchapter/S-corporationB. Limited Liability companyC. Non profit corporation

C. Cooperatives• A business that is owned and ran jointly

by its members

D. Franchise• When a company allows other businesses

to sell its goods for a share of the profitC. Ex. McDonald’s chain restaurants

2.01 Understand The Types of Business

Ownership QuestionsBy. Dana C. And Hannah D.

1. Tami prefers working alone in her auto body shop and being in control of the daily activities. This type of business ownership ADVANTAGE over corporation is:• Control of Decisions.

2. Mary owns stock for several companies, which she plans to pass ownership to her grandchildren. She chose this form of ownership over sole proprietorship because of the ADVANTAGE of:• Potential of Unlimited Life.

3. Tami opened an auto body shop after repairing a couple of cars to the high satisfaction of customers. She has experienced which ADVANTAGE over a corporation?• Ease of Formation.

4. Tami wants to invest money in shares of stock. She would have to pay taxes on her earnings twice. Which is an ADVANTAGE of a sole proprietorship over a corporation?• Single Taxation.

5. Todd decided to form a corporation instead of a sole proprietorship because of which ADVANTAGE listed below?• Limited Liability.

6. Hank has ownership, even without liability over his initial investment, along with George for a local business. This is an example of what type of business ownership?• Partnership.

7. Even though a company may sell shares of stock, it relies on a central body of people for financial directions. This is an example of type of business? • Corporation.

8. Chun purchased 150 shares of stock in the Panasonic Company. How many votes will she have at the next stockholder’s meeting?• 150

9. Carlos ignores minor decisions in his business even though his name is on the sign as one of the owners. This is an example of which type of business ownership?• Partnership

10. Several small businesses that sell organic foods have joined together to increase their chances to pay lower prices for inventory. This is an example of what type of business?• Cooperative.

11. Since Jane’s corporation has become so popular, she has decided to allow other businesses to sell her products. This is an example of what type of business?• Franchise.

12. Both Bob and Jeri contributed to the expansion of their business to sell more brands of tires. They both experienced which ADVANTAGE of a partnership over a sole proprietorship?• More Capital Available.