ch 3 - form of business ownerships

7/31/2019 Ch 3 - Form of Business Ownerships

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www.utm.my innovative entrepreneurial global 1

Chapter Three

Choosing a Form of

Business Ownership

SPL 1302 Basic Commerce

Dr. M. Khata Jabor

Department of Technical and Engineering Education

Faculty of Education


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Learning Objectives

1. Describe the advantages and disadvantagesof sole proprietorships.

2. Explain the different types of partners andthe importance of partnership agreements.

3. Describe the advantages and disadvantagesof partnerships.

4. Describe the advantages and disadvantages

of a corporation.


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Sole Proprietorships

A business that is owned (and usuallyoperated) by one person

The simplest form of business ownershipand the easiest to start

Many large businesses began as a smallstruggling sole proprietorships

The most widespread form of business

ownership


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Advantages and Disadvantages of

Sole Proprietorships

ADVANTAGES

Ease of start-up and closure

Pride of ownership

Retention of all profits

Flexibility of being your

own boss

No special taxes

DISADVANTAGES

Unlimited liability

A legal concept that holds a

business owner personally

responsible for all the debts

of the business

Lack of continuity

Lack of money

Limited management skills

Difficulty in hiring

employees


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A voluntary association of two or more persons to act as co-owners of business for profit

Less common form of ownership than sole proprietorship orcorporation

No legal limit on the maximum number of partners; most have

only 2 Large accounting, law, and advertising partnerships

have multiple partners

Partnerships are usually a pooling of special talents or the resultof a sole proprietor taking on a partner

Partnerships


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Types of Partners

General partner

A person who assumes full or shared responsibility for operating abusiness

General partnership: a business co-owned by two or more generalpartners who are liable for everything the business does

Limited partner

A person who contribute capital to a business but has nomanagement responsibility or liability for losses beyond theamount he or she invested in the partnership

Limited partnership: a business co-owned by one or more generalpartners who manage the business and limited partners who

invest money in it Master limited partnership (MLP): a business partnership that is

owned and managed like a corporation but taxed like apartnership



The Partnership Agreement

Articles of partnership An agreement listing and explaining the terms

of the partnership

Agreement should state

Who will make final decisions

What each partners duties will be

How much each partner will invest

How much profit or loss each partner receives or isresponsible for

How the partnership can be dissolved



Advantages and Disadvantages of Partnerships

ADVANTAGES

Ease of start-up

Availability of capital and

credit

Personal interest

Combined business skills

and knowledge

Retention of profits

No special taxes

DISADVANTAGES

Unlimited liability

Management

disagreements

Lack of continuity

Frozen investment



Corporations

An artificial person created by law with most of the legal

rights of a real person, including the rights to start and

operate a business, to buy or sell property, to borrow

money, to sue or be sued, and to enter into binding

contracts

There are 5.6 million corporations in the U.S.

They comprise only 20% of all businesses, but they accountfor 83.8 % of sales revenues



Corporate Ownership

Corporate ownership Stock

The shares of ownership of a corporation

Stockholder

A person who owns a corporations stock

Closed corporation

A corporation whose stock is owned by relatively fewpeople and is not sold to the general public

Open corporation A corporation whose stock is bought and sold on security

exchanges and can be purchased by any individual



Advantages and Disadvantages of

Corporations

ADVANTAGES Limited liability

Each owners financial

liability is limited to the

amount of money that he

or she has paid for thecorporations stock

Ease of raising capital

Ease of transfer of

ownership

Perpetual life

Specialized management

DISADVANTAGES Difficulty and expense of

formation

Government regulation

and increased paperwork

Conflict within the

corporation

Double taxation

Lack of secrecy



Advantages and Disadvantages



Special Types of Business Ownership (contd)

Government-owned corporations A corporation owned and operated by a local, state,

or federal government

Purpose

To ensure that a public service is available

Examples

Petronas

MAS

Tabung Haji



Special Types of Business Ownership (contd)

Not-for-profit corporations Corporations organized to provide social,

educational, religious, or other services, rather

than to earn a profit

Charities, museums, private schools, and

colleges are organized as not-for-profits

primarily to ensure limited liability


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ch 3 - form of business ownerships

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