FORMS OF BUSINESS OWNERSHIP

THREE MAJOR TYPES OF OWNERSHIPS

SOLE PROPRIETORSHIPS
PARTNERSHIPS CORPORATIONS

WHO HAS WHICH PIECE OF PIE?

Sole Proprietorship
....owned by a single individual

 Owned and operated by a single person

Features of Sole Proprietorship

Ownership flexibility Management flexibility Absolute profit retention Easy to form and dissolve

Mostly found in small businesses Owner only requires a few legal

prerequisites
Name registration Necessary licence Liability coverage(optional)

Operated by owners own finances Owner makes decision, takes action &

Partnerships
...owned by two or more people/groups

 Owned and operated by two or more

persons
Easy to form Hard to dissolve

Formation
Formal(contractual relation)

Features of Partnerships

Informal (verbal relation)

Owners require only a few legal

prerequisites
Name registration
Necessary license

Increased access to borrowed funds

Types of Partners
General or active partnership
Active in the operation

Limited or Sleeping Partner

Not involved in its daily

of a business Liable for all of its debts. Gets most benefitsprofit, authority & unlimited liability.

operations Liability limited to their investment Only invests in a business, can have a vote on certain issues

Types of Partnerships
General Partnership Limited Partnership Joint Ventures

General Partnership
No local or state filings are required to create this

type of partnership. Each partner is personally liable for all of the debts of the partnership (unlimited liability) Any one partner can form partnership by entering into a contract on behalf of the partnership Also, each partner is personally liable for the entire amount of any partnership debt

Limited Partnership
Consists of one or more general and limited

partners. Limited liability Often used as investment medium for large projects requiring a large amount of cash. The legal structure used by most venture

Joint Ventures
A temporary partnership between companies A company finds a partner in the country where it wants

to do business.
Attract small firms to conduct international business

Corporation
a legal entity separate from its owners, the shareholders

 Assets and liabilities are separate by its

owners Regular corporations are called C corporations Corporations must have at least one shareholder The shareholders of corporations have limited liability protection Presumed to be for-profit entities, and so they can have unlimited years of losses Businesses whose size reaches 75 shareholders may organize themselves as S corporation

Features of Corporations

Types of Corporations
Domestic corporation Incorporated within a state or a city Foreign corporation A business done in another state by a firm Alien corporation A firm incorporated in one nation does business in another.

Forms of Sole Proprietorship Ownerships :-

Partnership

Corporation

Number of owners Liability

One owner

Two or more

Unlimited #. of shareholders- up to 75 in s corporation Limited

Pros and Cons of Business Ownership

Unlimited personal liability 1. Owner retains all profits 2. Easy to form and dissolve 3. Owner has flexibility

Personal assets at risk of any partner

Advantage s

1. Easy to form 1. Limited financial 2. Benefits from liability complimentary skills 2. Specialized skills 3. Expanded financial 3. Expanded financial capacity capacity 4. Large scale operations 1. Unlimited financial liabilities 2. Interpersonal conflicts 3. Lack of continuity 4. Difficult to dissolve 1. Difficult and costly to form and dissolve 2. Tax disadvantages 3. Legal restrictions

Disadvanta 1. Unlimited financial ges liability 2. Financing limitations 3. Management deficiency & lack of efficiency