Ch. 5-2Ch. 5-2

Forms of OwnershipForms of Ownership

3 types of Business Ownership3 types of Business Ownership

ProprietorshipProprietorship

PartnershipPartnership

CorporationCorporation

Proprietorship- A business owned and run Proprietorship- A business owned and run by just one person.by just one person. Easiest business to start and end.Easiest business to start and end. Few legal requirements regarding the Few legal requirements regarding the

business ownership or capital needs.business ownership or capital needs. Sole control over all business decisions.Sole control over all business decisions. Owner receives ALL profit.Owner receives ALL profit.

Owner is responsible for ALL debt.Owner is responsible for ALL debt. Owner has no shelter from creditorsOwner has no shelter from creditors And asset owned by the proprietor can be And asset owned by the proprietor can be

claimed by creditors to pay businesses debt.claimed by creditors to pay businesses debt.

Partnership- A business owned and Partnership- A business owned and controlled by two or more people who controlled by two or more people who have entered into an agreement.have entered into an agreement.

Quick and easy to start.Quick and easy to start. Owners are both responsible for key business Owners are both responsible for key business

decisions and functionsdecisions and functions Partners share investments and profits based Partners share investments and profits based

on the terms of the partnership.on the terms of the partnership.

Each partner is responsible for debt if the Each partner is responsible for debt if the business fails.business fails.

Corporation- A separate legal entity formed by Corporation- A separate legal entity formed by documents filed with a state.documents filed with a state. Owned by one of more shareholders and managed by Owned by one of more shareholders and managed by

a board of directors.a board of directors. Have several owners who invest in the business by Have several owners who invest in the business by

purchasing stock.purchasing stock. Difficult to form than proprietorship or partnership.Difficult to form than proprietorship or partnership. Must meet more legal requirementsMust meet more legal requirements Not all owners have direct involvement in decision-Not all owners have direct involvement in decision-

makingmaking Do not have access to profits unless the board of Do not have access to profits unless the board of

directors approves it.directors approves it. Corporations protect stockholders to only the amount Corporations protect stockholders to only the amount

of money they have invested.of money they have invested.

Most U.S. businesses are…Most U.S. businesses are…

Most U.S. businesses are… Most U.S. businesses are…

Proprietorships!Proprietorships!

However, proprietorships only make However, proprietorships only make up about 5% of the total business revenue up about 5% of the total business revenue in the U.S.in the U.S.

Which for of business ownership should Which for of business ownership should you start?you start?

Choosing a proprietorship: Choosing a proprietorship: • Freedom of working for yourselfFreedom of working for yourself• Total control over decisionsTotal control over decisions• Limited knowledge neededLimited knowledge needed• Tax advantagesTax advantages

• LOTS of risk involvedLOTS of risk involved

Choosing a PartnershipChoosing a Partnership

Partnership agreement- A written agreement Partnership agreement- A written agreement among all owners that details rules and among all owners that details rules and procedures that guide ownership and procedures that guide ownership and operation.operation.

Choosing a PartnershipChoosing a Partnership

Two or more people can contribute to the Two or more people can contribute to the investment needed to start the business as investment needed to start the business as well as the expertise to run a business.well as the expertise to run a business.

Each partner is responsible for decisions Each partner is responsible for decisions made by all other partnersmade by all other partners

NO protection for either partnerNO protection for either partner If a partner chooses to leave the partnership If a partner chooses to leave the partnership

or dies, the partnership usually dissolves.or dies, the partnership usually dissolves.

Choosing a corporationChoosing a corporation

Articles of incorporation- A written legal Articles of incorporation- A written legal document that defines ownership and document that defines ownership and operating procedures and conditions for the operating procedures and conditions for the business.business.

• Corporate bylaws- Operating procedures for the Corporate bylaws- Operating procedures for the corporationcorporation

• Board of Directors- The people who will make the Board of Directors- The people who will make the major policy and financial decisionsmajor policy and financial decisions

Choosing a corporationChoosing a corporation

Limited liability: only the money invested can Limited liability: only the money invested can be lostbe lost

Ownership doesn’t necessarily include being Ownership doesn’t necessarily include being a part of the day to day operations of the a part of the day to day operations of the companycompany

Business can be easily expanded and Business can be easily expanded and ownership can be changed easilyownership can be changed easily

Choosing a corporationChoosing a corporation

Decision-making is shared among many Decision-making is shared among many peoplepeople

Many records are required and more laws Many records are required and more laws regulate operations.regulate operations.

Must pay corporate taxes on profits earned, Must pay corporate taxes on profits earned, AND must pay taxes on individual earnings.AND must pay taxes on individual earnings.

Limited liability partnership- Some Limited liability partnership- Some investors cannot lose more than the investors cannot lose more than the amount of their investment, but are not amount of their investment, but are not allowed to participate in the day-to-day allowed to participate in the day-to-day managementmanagement

Joint venture- A unique business Joint venture- A unique business organized by two or more other organized by two or more other businesses to operate for a limited time businesses to operate for a limited time and for a specific project.and for a specific project.

Franchise- A written contract granting Franchise- A written contract granting permission to operate a business to sell permission to operate a business to sell products and services in a set way.products and services in a set way.

The franchisee must run the business in the The franchisee must run the business in the way that the franchiser determines.way that the franchiser determines.

The franchisee receives the profits of the The franchisee receives the profits of the company, but must pay a percentage to the company, but must pay a percentage to the franchiser in return for operating assistance.franchiser in return for operating assistance.

Ch. 5-3Ch. 5-3Organizational Structure for Organizational Structure for

BusinessBusiness Mission Statement- A short written statement of the Mission Statement- A short written statement of the

reason a business exists and what it wants to reason a business exists and what it wants to achieve.achieve.

Goal- A precise statement of results the business Goal- A precise statement of results the business expects to achieve.expects to achieve.

Policies- Guidelines used to make consistent decisionsPolicies- Guidelines used to make consistent decisions

Procedures- Descriptions of the way work is to be done.Procedures- Descriptions of the way work is to be done.

Principles of effective organizationPrinciples of effective organization

Responsibility- The obligation to complete Responsibility- The obligation to complete specific workspecific work

Authority- The right to make decisions Authority- The right to make decisions about how responsibilities should be about how responsibilities should be accomplishedaccomplished

Accountability- Taking responsibility for the Accountability- Taking responsibility for the results achieved.results achieved.

Unity of command- There is a clear reporting Unity of command- There is a clear reporting relationship for all staff of a business.relationship for all staff of a business.

Span of control- The number of employees who Span of control- The number of employees who are assigned to a particular work task and are assigned to a particular work task and manager.manager.

Organizational chart- Diagram that shows the Organizational chart- Diagram that shows the structure of an organization, classifications of structure of an organization, classifications of work and jobs, and the relationships among work and jobs, and the relationships among those classifications.those classifications.

S Corporation- Owned by members, S Corporation- Owned by members, serves their needs, and is managed in their serves their needs, and is managed in their interest.interest. The primary reason for an S Corporation is to The primary reason for an S Corporation is to

avoid double taxation on corporate income. avoid double taxation on corporate income.

LLC- Limited liability company- Provides LLC- Limited liability company- Provides liability protection for owners, combines liability protection for owners, combines partnership with corporation.partnership with corporation.

Non-profit corporation- Group of people Non-profit corporation- Group of people who join to do some activity that benefits who join to do some activity that benefits the public.the public.

Functional organizational structure- Work Functional organizational structure- Work is arranged within main business functions is arranged within main business functions such as production, operations, marketing such as production, operations, marketing and human resources.and human resources.

Matrix Organizational structure- Work is Matrix Organizational structure- Work is structured around specific projects, structured around specific projects, products, or customer groups.products, or customer groups.