Chapter 4 - Forms of Business Ownership

Forms of Business Ownership

Forms of Business Ownership

• Sole Proprietorship • Partnership • Corporation

• The (Blank) is that type of business entity owned and operated by a single person. • The big percentage of businesses owned by (BLANK) indicate the popularity of this ownership type.

Sole Poprietorship

Advantages of Sole Proprietorship

• Ease and Cost of Formation • Secrecy • Distribution and Use of Profits • Control of the Business • Government Regulation • Taxation • Closing the Business

Disadvantages of Sole Proprietorship

• Owner's Lack of Ability and Experience • Difficulty in Attracting Good Employees • Difficulty in Raising Capital • Limited Life of the Firm • Unlimited Liability of the Proprietor

A (Blank) is a legal association of two or more persons as co-owners of an unincorporated business.

Partnership

Advantages of Partnership

• Ease of Formation • Pooling of Knowledge and Skills • Availability of More Funds • Ability to Attract and Retain Employees • Tax Advantage

Disadvantages of Partnership

• Unlimited Liability • Limited Life • Potential Conflict Between Partners • Difficulty in Dissolving the Business

Types of Partnerships

• General Partnership • Limited Partnership

An association of two or more persons, each with unlimited liability, who are actively involved in the business.

General Partnership

An arrangement in which the liability of one or more partners is limited to the amount of assets they have invested in the business.

Limited Partnership

• A (Blank) is an enterprise chartered by law, with most of the legal rights of a person, including the right to conduct a business, to own and sell property, to borrow money, and to sue or be sued.

• The (Blank) form of business is the third ownership option open to businesspersons.

• Owners of these are called stockholders.

• They are issued certificates of ownership called stock.

Corporation

Advantages of Corporation

• Limited Liability • Ease of Expansion • Ease of Transferring Ownership • Relatively Long Life • Greater Ability to Hire Specialized Management

Disadvantages of Corporation

• More Expensive and Complicated to Organize • Double Taxation • More Extensive Government Restriction and Reporting Requirements • Employment Lack Personal Identification with and Commitment

The corporate form of ownership has been modified to cater to special needs.

Modifications of the Corporate Form of Ownership

Types of Modifications of the Corporate Form of Ownership

• Cooperatives • Mutual Companies

• is an organization composed of individuals or businesses that have banded together to reap the benefits of belonging to a large organization.

• are not organized for profit but to make its members individually profitable or save money.

Cooperatives

Types of Cooperatives

• Credit Union

• It accepts deposits from the members and lends money to its members at a very reasonable interest rate.

• Producers Cooperative

• its purpose is to actually assist one another in the procurement of materials, machinery, equipment, and other time-saving devices.

• Marketing Cooperative

• Its purpose is to assist members in the marketing of their products.

• Consumer Cooperative

• Its purpose is to provide members with quality goods and services at reasonable prices.

• Service Cooperative

• Its purpose is to make services readily available and at a lower price.

A (BLANK) "is a financial-service firm (such as an insurance company or a savings and loan association) owned by its policyholders or depositors.

Mutual Companies

Types of Mutual Companies

• Mutual Savings Banks

• It is owned by depositors and specializes in savings and mortgage loans.

•Mutual Insurance Company

• It is a cooperative corporation organized and owned by its policyholders.

Other Forms of Business Organization

• Joint stock company

• The joint stock company is a form of business enterprise in which the capital is divided into small units permitting a number of investors to contribute varying amounts to the total, profits being divided between stockholders in proportion to the number of shares they own.

• Joint Venture

• A joint venture is best regarded as a particular partnership established for a specific undertaking.

• This type of organization is created for the purpose of bringing together several partners to engage in a business activity which is normally very specialized and which exists for a Iimited, specific purpose.

• Business Trust

• The business trust is a legal form of organization in which a trustee is appointed to manage the business and its operations through a trust relationship.