ALTERNATIVE

FORMS OF
BUSINESS
ORGANIZATION
 SO L E
I E T O R S H I P
P RO P R
 SOLE PROPRIETORSHIP

Benefits: Drawback:
✓Oldest, most common, Simplicity in decision Difficult to come up with a

and simplest form of making sizable amount of capital

Easy and inexpensive to Has complete control

business organization. form over the business

✓One owner Subject to few Proprietor has unlimited

government regulations personal liability

✓Owner is inseparable Taxes are determined at Life of the company is

the personal income tax limited to the life of the
from the business rate of the owner. proprietor
 N E R S H I P
P A RT
 PARTNERSHIP

✓ Exists when 2 or more Advantage: Disadvantage:

persons combine their Low cost and ease of
Unlimited liability
resources to conduct formation

business earn profit, and Two heads (or more) are

better than one
Limited life

distribute among themselves

More capital is available Difficulty of transferring
the results of their operations. for the business ownership

✓ Contract evidencing its Difficulty of amassing a

existence – Articles of large amount of capital

Partnership
 O R A T I O N
CO RP
 CORPORATION
✓ Legal business entity
created by the government. Advantage: Disadvantage:

✓ Considered as separate and Limited liability Double taxation

distinct from its owners and
executives. Unlimited life Costly or Expensive

✓ Contract evidencing the Ease of transferability of Difficulty of making

existence of a corporation is ownership. decisions

Articles of Incorporation.
✓ The articles of incorporation
present the rights and
limitations of the entity.
 HYBRID FORMS OF
OWNERSHIP
Limited
Liability
Limited
Company
Liability Limited
(LLC)
Limited Liability
Partnership Partnership
(LLLP) (LLP)
Sub-S
Corporation
 ✓Composed of at least one general
partner and the rest are limited
partners.
Limited ✓Limited partners do not have
Liability control of the operations.
Partnership ✓Limited partners are liable only
(LLP) for the amount of their
investments.
✓This specific makes the LLP a
hybrid because although the firm
is a partnership, it has the benefit
of a corporation-like firm where
the owners are not obliged to pay
company debts with their personal
properties.
 ✓A business structure for private
companies in the United States
✓One that combines aspects of
Limited partnerships and corporations
Liability ✓Rather than shareholders,
Company business owners of limited liability
(LLC) companies are referred to as
members.
 C Y S
I P
N
E N S H
r
u
of
p er
o th s

G
A A T I O
r
n
r
l
g no on
a a rs es
o ys pe vic e
o f er tim -
so mp p o r s e ion y
E L r
pe l) e rou nde sam cis orit n
a pa r g re e de th a
i o , Y
R e
e v e
ri
c
n n ,t t o t
n (p rso y) d a ga ing ag EN IP .
h
t es u
a en C t
h ns pe nc an ele ak e G SH ts
W o g e d m t h A N xis
r s ( a t o IO e
❏ pe AT
L
 AGENCY
CONFLICTS
✓ Conflict of interest if the manager is also a
partial owner of the same firm.
✓ Manager’s primary goal is to maximize the
size of the firm, and by doing so he stabilizes
job security for himself and for all the
employees of the firm, and ultimately, increase
his position, status, perquisites (privileges)
and salary, thus the shareholder’s primary
goal of wealth maximization might be set
aside.
AGENCY
COSTS
✓ Audit costs – geared toward
monitoring managerial
actions, and restructuring the
company that would regulate
undesirable managerial
actions.
 CONTROL
MECHANISM
✓ Ways to encourage managers to
perform for the interest of
shareholders.
➢ Provide performance-based
incentive plan
➢ Straight involvement by
shareholders (institutional)
TAKEOVER
✓ Shareholders in some cases do
hostile takeovers.
✓ In this situation, managers of firms
acquired by the shareholders are
terminated.
✓ Managers who are retained, lose
independence and autonomy, thus
‘twisting’ the manager’s arm to
perform measures that would
maximize the company’s share prices
and ultimately maximizes the firm’s
wealth.
T H A N K
YO U !