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Basic Ownership FormsMr. Hudnall

Business Organizations3 main types

Sole ProprietorshipPartnershipCorporation

Considerations for choosing the best typeOwner’s liability for firm’s debtsThe ease and cost of forming the businessThe ability to raise fundsThe taxesThe degree of operating control the operator can

retainThe ability to attract employees

Sole Proprietorship

Advantages DisadvantagesEasy &

inexpensive to formProfits go to ownerDirect controlFewer regulations No special taxesEase of dissolution

Unlimited liabilityDifficult to get capitalLimited management

experienceTrouble getting

employeesTime commitmentUnstable business lifeLosses owner’s

responsibility

Created, Owned, Operated, and usually financed by one person.

Famous Sole Proprietorships?

PartnershipsTypes of partnerships

General Partnerships Partners share responsibilities, profits, etc Unlimited liability

Limited Partnerships General partners have unlimited liability and are

responsible for its operations. Limited partners have limited liability and do not

participate in the company’s operations.

PartnershipsAdvantages DisadvantagesEase of formationAvailability of capitalDiversity of skills &

expertiseFlexibility to respond to

changing business conditions, Relative freedom from government control

No special taxes

Unlimited liability for general partners

Potential for conflict between partners

Limited lifeSharing of profitsDifficulty in leaving a

partnership

Famous Partnerships?

CorporationsLegal entities with a separate existence from its owners.

Types of CorporationsC – corporations

conventionalS – corporations

Taxed like a partnership

CorporationsAdvantages Disadvantages• Limited liability• Easy to get

financing• Easy to transfer

ownership• Unlimited life-span• Tax deductions

Double taxation of profits

Costly & complex to form

Government restrictions

What are some famous corporations?

?

LLCAdvantages DisadvantagesProtection of

personal assetsAvoid double-

taxation of profitsFlexible

management & organization

Good for foreign investors

• Often required to have a limited life (< 30 years)

• Not corporations, so can not issue stock

Largest LLCs?

$98 billion in 2007 $88.3 billion

$74.8 billion – self supporting federal agency

$49 billion

$25 billion $13.6 billion

CooperativesFormed by people with similar interestsGoals: to reduce costs and gain economic

powerProfits go to member-owners in proportion to

contributionsHave corporate features (limited liability,

unlimited life, Board of Dir.)Types of Cooperatives

Seller CooperativesBuyer Cooperatives

FranchisesIndividually owned companies that

operate like they are part of chain of companies

Franchisor supplies management training, operating assistance, brand name, product, financial assistance, etc

Franchisee pays a fee for the franchise and sells the goods or services of the franchisor

Allows an individual to own a business without starting from nothing – buys a proven product and operating methods

FranchisesAdvantages DisadvantagesIncreased opportunity

to expand (franchisor) Recognized name,

product, and operating concept (franchisee)

Management training and assistance (franchisee)

Financial assistance (franchisee)

Loss of control (franchisor)

Costs of franchisingRestricted operating

freedom (franchisee)

Most Popular Franchises?