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FORMS OF BUSINESS

OWNERSHIP
CONCEPT OF BUSINESS
Business may be defined as an economic activity
involving the production and sale of goods and
services undertaken with the motive of earning profit
by satisfying human needs in the society.
CHARACTERISTICS OF BUSINESS ACTIVITIES

■ An economic activity.
■ Production or procurement of goods and services.
■ Sale or exchange of goods and services for the
satisfaction of human needs.
■ Dealings in goods and services on a regular basis.
■ Profit earning.
CHARACTERISTICS OF BUSINESS ACTIVITIES

■ An economic activity.
■ Production or procurement of goods and services.
■ Sale or exchange of goods and services for the
satisfaction of human needs.
■ Dealings in goods and services on a regular basis.
■ Profit earning.
3 BASIC FORMS OF BUSINESS OWNERSHIP

■ Sole Proprietorship

■ Partnership

■ Corporation
SOLE PROPRIETORSHIP

A business owned and


operated by one
person.
ADVANTAGES OF SOLE PROPRIETORSHIP
1. Ease Of Formation
– Easy and inexpensive to create.
2. Retention Of Profits
– Owner receives all profits.
3. Tax Advantages
– Taxes are paid as personal income of owner which
is usually lower than corporate taxes.
4. Control Of Decisions
– Owner makes all business decisions & has control
over all aspects of the business.
ADVANTAGES OF SOLE PROPRIETORSHIP
5. Flexibility
– Flexibility in scheduling to meet owner’s
needs.
6. Fewer Government Regulations
– Unless you need certification or local permits,
government intervention is minimal.
7. Pride Of Ownership
DISADVANTAGES OF SOLE PROPRIETORSHIP
1. Unlimited Liability
– The debts of the business may be paid from
the personal assets of the owner.
2. Limited Capital
– Difficult to raise capital.
– Banks/lenders consider sole proprietorships
to be a high-risk investment.
DISADVANTAGES OF SOLE PROPRIETORSHIP
3. Unstable Business Life/Lack Of Continuity
– You are “it” – illness or injury that prevents
you from working may cause you to close.
– Bankruptcy or incarceration will dissolve your
business.
4. Limited Operating/Management Skills
– Sole proprietorship is limited by his/her skills
and abilities.
PARTNERSHIP
A form of business ownership in
which two or more people share
the assets, liabilities, and profits.
The voluntary association of two
or more people who have
combined their resources to carry
on as co-owners of a lawful
enterprise for their joint profit.
ADVANTAGES OF PARTNERSHIP
1. Complementary Skills
– Team with partners with different skills,
experience and contacts.
2. Access To Capital
– Increase the amount of capital to run the
business. Lenders may be more willing to lend
or extend credit
3. Tax Advantages
– The partnership does not pay income tax on
profits.
– Each partner pays income tax on her/his
individual share of the profit.
ADVANTAGES OF PARTNERSHIP
4. Decreased Competition
– Combining like businesses will decrease or
eliminate competition
5. Reduced Expenses
– When two or more businesses combine
expenses are no longer being duplicated
• Ex. promotion, office space, supplies, utilities
DISADVANTAGES OF PARTNERSHIP
1. Unlimited Liability
– Each partner can lose personal assets to pay
business debt.
– In a limited partnership, the liability is limited to
the amount invested in the business.
2. Uncertain Duration
– Remaining partners may start a new
partnership if they have the money to buy the
former partner’s share
DISADVANTAGES OF PARTNERSHIP
3. Conflict
– Partnerships may lead to disagreements.
– Can affect the efficiency of the business, morale
of employees, & success or failure of the
venture.
4. Dissolution
– Difficulty in ending
– Withdrawing can be complicated if there is no
written partnership agreement.
CORPORATION
A business that is chartered by a
state and legally operates apart
from its owners.
Owned by stockholders who
have purchased units or shares
of the company
ADVANTAGES OF CORPORATIONS
1. Limited Liability
– Owners are liable only up to the amount of their
investments. Personal assets cannot be used to
pay business debt.
2. Transfer Of Ownership
– Ownership simply transferred by selling stock to
someone else
3. Stability / Perpetual Life
– Unlimited Life / May exist indefinitely
– The death or withdrawal of an
owner/stockholder does not affect the life span
of the corporation.
ADVANTAGES OF CORPORATIONS
4. Skilled Managers
– The business can hire experts to professionally
manage each aspect of the company.

5. Financial Power
– Acquisition Of Capital
– Can raise money quickly by issuing shares of
stock.
DISADVANTAGES OF CORPORATIONS
1. Dual Taxation
– Corporation is taxed on profits from the
company

2. Subjected to More Government


Regulations
– Required to keep detailed reports for
stockholders & to keep them informed of
certain corporate transactions, & voting rights
DISADVANTAGES OF CORPORATIONS
3. Difficulty in forming and operating
– Legal assistance is needed to start a
corporation
• Lawyer fees can be very expensive

4. Separate Owners and Managers


– Separation of ownership & management
provides more opportunity for irregularities
or misunderstandings