The Business Environments

In this presentation three forms of ownerships in depth.

Thapelo Muneri

OverviewIntroduction to business ownershipSole proprietorshipPartnershipCorporations

Choosing a Form of OwnershipThere is no one “best” form of ownership.

The best form of ownership depends on an entrepreneur’s particular situation.

Key: Understanding the characteristics of each form of ownership and how well they match an entrepreneur’s business and personal circumstances

Factors affecting the choiceTax considerationsLiability exposureStart-up and future capital requirementsControlManagerial abilityBusiness goalsManagement succession plansCost of formation

Major forms of ownershipSole ProprietorshipPartnershipCorporationLimited Liability Company

EntrepreneurshipEntrepreneur: A person who forms and

operates a new business either by himself or herself or with others

Sole proprietorship: A form of business in which the owner is actually the businessThe business is not a separate legal entitySole proprietor: The owner of a sole

proprietorship

Advantages of Sole ProprietorshipSimple to create

Least costly form to begin

Profit incentive

Total decision making authority

No special legal restrictions

Easy to discontinue

Disadvantages of Sole ProprietorshipUnlimited personal liability

Limited skills and capabilities

Feelings of isolation

Limited access to capital

Lack of continuity of the business

Liability Features of the Basic Forms of Ownership

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Sole Proprietorship

Claims of Sole Proprietor’s CreditorsClaims of Sole Proprietor’s Creditors

Sole Proprietor’s Personal Assets

Sole Proprietor’s Personal Assets

PartnershipAn association of two or more people who

co-own a business for the purpose of making a profit.

Always wise to create a partnership agreement.

The best partnerships are built on trust and respect

Advantages of PartnershipsEasy to establish

Complementary skills of partners

Division of profits

Larger pool of capital

Ability to attract limited partners

Types of PartnersGeneral partners

Take an active role in managing a business.Have unlimited liability for the partnership’s

debts.Every partnership must have at least one

general partner.Limited partners

Cannot participate in the day-to-day management of a company.

Have limited liability for the partnership’s debts.

Disadvantages of PartnershipUnlimited liability of at least one partnerCapital accumulationDifficulty in disposing of partnership

interest without dissolving the partnershipLack of continuityPotential for personality and authority

conflictsPartners bound by law of agency

Liability Features of the Basic Forms of Ownership

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Partnership

Claims of Partnership’s CreditorsClaims of Partnership’s Creditors

Partnership’s Assets

Partnership’s Assets

GeneralPartner’sPersonal

Assets

GeneralPartner’sPersonal

Assets

GeneralPartner’sPersonalAssets

GeneralPartner’sPersonalAssets

CorporationTypes of corporations:Publicly held – a corporation that has a

large number of shareholders and whose stock usually is traded on one of the large stock exchanges.

Closely held – a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.

Advantages of the corporationLimited liability of stockholdersAbility to attract capitalAbility to continue indefinitelyTransferable ownership

Liability Features of the Basic Forms of Ownership

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Corporation

Claims of Corporation’s CreditorsClaims of Corporation’s Creditors

Corporation’s Assets

Corporation’s Assets

Shareholder’sPersonal AssetsShareholder’s

Personal AssetsShareholder’s

Personal AssetsShareholder’s

Personal Assets

barrier barrier barrier

barrier

Disadvantages of corporationCost and time of incorporation processDouble taxationPotential for diminished managerial

incentivesLegal requirements and regulatory “red

tape”Potential loss of control by founder(s)