Forms of Business Structures 3 general methods for business

organization. Sole proprietorship Partnership Corporation

Sole ProprietorshipOne single person owns the business.Most common and simplest form of

ownership.Owner keeps all profits and suffers all

losses.Owner has unlimited liability.Business income is taxed as personal

income.

Sole ProprietorshipLimited ability to raise equity.

Based on individual’s level of wealth. Makes it difficult to expand and grow.

Must sell entire business.Limited use in sport industry.Ownership and management are the

same.

PartnershipMore common form of ownership in

sport industry.Many teams are formed as partnerships

or corporations.A business formed by two or more

individuals.General vs. Limited Partnership

PartnershipSimilarities to sole proprietorship.

Rights and responsibilities of all partners must be spelled out in partnership agreement.

CorporationBecoming more popular in sport

industry as industry grows. It is a distinct legal entity composed of

one or more individuals/entities.What powers does a corporation have?

Corporation Very complicated to start.

Must have articles of incorporation/bylaws These lay out how corporation is owned and operated.

Has: Board of Directors Management Employees

Board of Directors acts on behalf of ownership/shareholders.

Board is usually elected by shareholders.

CorporationManagement and board must always

act on behalf of shareholders. If they don’t, they may face civil/criminal

action. Ex. Enron, WorldCom, Tyco.

Shareholders have the right to sue management or Board of Directors. Ex. Ascent Group and Colorado

Avalanche/Pepsi Center sale.

CorporationProfits are double taxed.

Corporation pays taxes on net income. Shareholders pay taxes on

dividends/capital gains.Easy to transfer ownership Easier to raise capital.

CorporationPublic vs. Private

Both issue shares of ownership. Public company stock is bought and sold

on public markets (NYSE/NASDAQ). Publicly stated stock prices.

SEC requires public companies to make public more financial information.

Annual Report 10-K report 10-Q report Sale of large blocks of stock by management

and Board.

S Corporation Special type of corporation. Limit of 75 shareholders/owners.

Must be US residents. Must not be other corporations/partnerships.

Only 1 level of taxation (personal income level). No double taxation.

Used to be a very popular form of sport team ownership.

Must hold annual stockholder meetings. Can retain profits. But, they have been replaced in some cases by:

Limited Liability Partnership/Corporation LLP/LLC - New type of partnership.

Have become a common form of ownership in pro sport.

All partners have limited liability. Taxed as a partnership. Advantages of both partnerships and corporations. Don’t need annual meetings. Fewer corporate formalities/paperwork. Deduct losses from personal earnings. Profits subject to SS taxes and medicare taxes.

Ownership of Teams: Profit-Seeking

Professional sport teams are small to mid sized businesses.

Days of family ownership are slowly disappearing (Yawkey, Griffith, O’Malley)

Types of Team Owners: Wealthy individuals: John Henry, Paul Allen, the

Kraft’s, Daniel Snyder, Mark Cuban Corporate: Comcast, Cablevision, Disney, Fox,

Tribune, Anheuser-Busch

Goals of Sports Firm Profit-maximizing?

Most owners have made $$ in other ventures Teams are a “fun” investment

Differing goals? : team owners versus team management