Major forms of business ownership.Sole ProprietorshipPartnershipCorporationFranchisingExplain how business owners can measure their business performance.

Sole ProprietorshipOwned by a single owner.PartnershipCo-owned by two or more people.Co-owners must register with the state and may need an occupational license.CorporationState chartered entity that pays taxes and is legally distinct from its owners.

Business owned (and usually operated) by one personSimplest form of business ownership Bears all responsibilityMost popular form of business organization more than 70% of allGenerate less than 10 % of all business revenue.Most common in:RetailingServiceAgriculture

Ease of StartupLittle legal documentationNo co-owners to consultLeast expensive to startPride of OwnershipRetention of profitsFlexibilityNo Business Income Tax

Unlimited LiabilityLimited Life Business ends when owner leaves the businessLimited Access to Start-up CapitalLimited Access to Credit Limited Management ExpertiseDifficulty in Hiring EmployeesProprietor not considered an employee

Two or more owners Least numerous form less than 10% of all businessesPartnership AgreementSpecifies rights and obligations of partnersIf written, called the Articles of Partnership (Articles of Co-partnership)

General PartnershipsAll partners have unlimited liability.Limited PartnershipsSome partners have personal liability that is limited to the cash or property they invested in the firm.One or more general partners who actively manage the business, receive a salary, share in profits and losses, have unlimited liability.Personal earnings received from the partnership are subject to personal income taxes.

Greater Access to CapitalGreater Access to CreditRetention of ProfitsMore Management ExpertiseNo Business Income Tax

Shared ProfitsUnlimited Liability for General PartnersEach partner has Agency powerLimited LifeBusiness ends when any partner withdrawsManagement DisagreementsFrozen Investment

General PartnerUnlimited LiabilityAssumes Management RoleLimited PartnerLiability limited to InvestmentMay not take active managerial roleEvery partnership must have at least one general partner

General PartnershipAll partners are general partnersLimited PartnershipOne or more limited partnersLimited Liability PartnershipOwned & managed like a corporationTaxed like a partnershipShares may be sold

Generally larger than other forms (Except for S-Corporation)Considered a separate legal entityOwners called Stockholders or ShareholdersOwnership evidenced by Stock CertificateGoverned by Board of Directors

Limited LiabilityEase of Ownership TransferUnlimited LifeGreater Access to CapitalSpecialized Management Expertise

More difficult & costly to formRequires a Corporate CharterSubject to greater governmental scrutinyDiluted earningsDouble taxation

SPCorpIncome$1,000,000 $1,000,000Expenses 500,000 500,000EBT $500,000 $500,000 (Assume Business Tax Rate = 50%)Business Tax 0 250,000Net Profit $500,000 $250,000(Assume a 30% Personal Tax Rate)Personal Tax 150,000 75,000$ to Owners $350,000 $175,000

Individual or group must adopt corporate charter and file it with the stateDescribes name of the firm, stock issued, firms operationsMust also establish bylawsShareholders have limited liabilityShareholders elect members of board of directors

http://www.dos.state.ny.us/corp/corpwww.html

Legal Permission to Operate as a CorporationIssued by stateMay not conduct business as a corporation without a charter

Company Name & AddressNames & addresses of IncorporatorsPurpose of the CorporationMaximum amount of stock & Classes of Stock to be issuedRights & Privileges of stockholdersLength of time the corporation is to exist

Elect members of board of directors who are responsible for establishing general policies of the firmElect president and other key officers who run the businessEarn return on investment in two waysMay receive dividendsStock may increase in value

Common StockVotes in corporate mattersOne vote per share ownedPreferred StockNo voting rightsDividend claims are paid 1st DividendDistribution of earnings to the stockholders of a corporation

Privately HeldOwnership is restricted to small group of investors.Stock is not traded publicly.Examples: L. L. Bean, Polo, Ralph Lauren.Publicly HeldLarger corporations.Stock is traded publicly.Act of initially issuing stock: going public.

Government-Owned CorporationPublic CorporationOwned & operated by governmentPost office, NASAQuasi-Government CorporationQuasi-Public CorporationPrivately owned, government controlled monopolyPublic utilities Private CorporationOwned by individuals or other companies

Not-For-Profit CorporationOrganized to provide a social, educational, religious, or other serviceHabitat for Humanity, Red CrossFor-Profit CorporationClosed CorporationStock owned by relatively few peopleStock not sold to general publicOpen CorporationStock is bought and sold on security exchangesCan be purchased by any individual

S-Corporation (Subchapter-S Corporation)Corporate structure designed for small businessTaxed as a partnership if there are 75 or fewer stockholdersNo non-resident alien stockholdersOnly one class of stockLimited-Liability Company (LLC)Combines the benefits of a corporation & partnershipNot limited to 75 stockholders

State-chartered entity that pays taxes and is distinct from its owners.AdvantagesDisadvantagesLimited liability.Access to funds. OwnershipTransferMay be costly to establish.Financial disclosure. Agency problems.Tax disadvantage.

AdvantagesDisadvantagesLower taxes.Limited liability. Ownership Transfer Regulations may vary from state to state which impact taxation and liability.

Special type of corporation with 75 or fewer owners.

Hostile takeoverTypes of mergersHorizontal: Similar products / servicesVertical: Different but related firmsConglomerate: Completely different industries

Franchise License to operate an individually owned business as though it were part of a chain of outlets or storesThe business itself FranchisingActual granting of a franchise

Business owner (franchisor) allows another (the franchisee) to use its trademark, trade name, or copyright, under specified conditions.Each franchise operates as an independent business.Typically owned by a sole proprietor.

FranchisorSupplies a known & advertised business nameSupplies management skillsSupplies training & materialsSupplies method of doing businessFranchisee:Supplies labor & capitalOperates the franchised businessAgrees to abide by the franchise agreement

FranchisorFast, Selective DistributionMotivated FranchiseeFranchiseeOpportunity to start a business Business Experience of othersNationally recognized nameNational promotional campaigns

Mainly from Franchisees Viewpoint:Franchisors contract can dictate every aspect of the businessPay for securityLong hoursCompetition from same company

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