Forms of OwnershipCoach Johnson

3 Types of Ownership Sole Proprietorship Partnership Corporation

Sole Proprietorship Overview Owned and Controlled by one person Oldest, simplest, most common Examples include:

lawyers, plumbers, carpenters, hairstylists, florists, and farmers

Advantages? Disadvantages?

Sole Proprietorship Advantages: Easy start up

Small Capital and few legal consideration Zoning and Licenses may be required

Not difficult to obtain

Control Take opportunities, react to troubles Personal satisfaction

Sole Proprietorship Advantages: Profits

Stay in house Major decision in choosing this type

Taxation Individual not business

Sole Proprietorship Disadvantages: Unlimited Liability

Personally responsible for all goods and bads Sole Responsibility

All aspects of running business Time, energy, decision making

Sole Proprietorship Disadvantages: Limited Growth Potential

Small loan or Savings Difficulty getting loan

Collateral House Car

More Capital = Expansion

Sole Proprietorship Disadvantages: Longevity

Firm/Business life Depends on owns:

Health Hard Work Time Effort

Sole Proprietor Activity1. Name three challenges facing a sole

proprietorship

2. Name two types of careers we discussed

3. Name the two main advantages for being a sole proprietor

4. How is a sole-proprietor taxed?

Partnerships Owned and Controlled by two or more people Advantages? Disadvantages? Examples include:

Doctors, lawyers, accountants, and construction companies

Partnerships Overview General partnerships

Enjoy equal decision-making authority Each has unlimited liability

Limited Partnership Provide financial capital in exchange for a share

of the profits Rarely take an active role in business decisions

Liability is limited for some partners

Advantages of Partnerships• Easy start up

• Low costs and few government regulations• Partnership contracts

• Outline responsibilities of each• Includes conditions for adding/dropping partners, and

dissolving the partnership

Advantages of Partnerships• Specialization

• Each can have different duties• Helps realize specific talents • Pizza Business Example

• Shared Decision Making & Loss• Minimize the chance of mistakes• Secure capital easier than sole• Take hit = keep going

Partnership Disadvantages Unlimited Liability

Can lose more than you invest Still not a large number of owners, much risk

Conflict Difference of opinions

Lower morale Delay decisions Affect overall efficiency

Partnership Disadvantages• Lack of longevity

• Willingness and Ability of teamwork• Illness• Death• Conflict

Partnerships Assignment Take a few minutes to research partnership

contracts online. Imagine that you are opening a business with

one partner – create an outline that details some of the items you would include in your partnership contract.

See examples 1-Contract 2-Outline

Corporations A corporation – group of owners (stockholders)

share profits (and losses) Corporations can

own property hire workers make contracts pay taxes sue and be sued make and sell products

Corporate Advantages Benefits for Stockholders

Limited liability (only as much as they invest) Can sell ownership at any time

Benefits for Corporations Founders have limited liability Separation of ownership from management Easy to raise capital Longevity

Corporate Disadvantages Corporate Issues

Corporate charters expensive and difficult to obtain

Federal and state governments regulate corporations

Slow decision-making process (idea, discuss, present, vote, act)

Corporate Disadvantages Stockholder Issues

Earn profit without actually working for the company

Lack of control Shared Issues

Corporate profits are TAXED TWICE!! Corporate income Dividend income