Business in a

Changing World

Options for Organizing Business

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McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
Forms of Business Ownership

•Sole proprietorship
•Partnership
•Corporation

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 Comparing the Forms of
Business Ownership

Source: U.S. Bureau of the Census, Statistical Abstract of the U.S. 2003,
(Washington, D.C.: U.S. Government Printing Office, 2004), p. 459.
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Forms of Business Ownership

Various Forms of Business Ownership

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Forms of Business Ownership

Sole Proprietorship

Businesses owned and operated by one

individual; the most common form of business
organization.

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Forms of Business Ownership

Sole Proprietorship

•Many restaurants
•Hair salons
•Flower shops
•Dog kennels
•Independent grocery stores

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Forms of Business Ownership
Sole Proprietorship -- Facts

• 15-20 million in the U.S.

• 80% of all businesses
• Men 2x more likely than
women to start own
business

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Forms of Business Ownership

Advantages of a Sole Proprietorship

•Ease and cost of formation

•Secrecy
•Distribution and use of profits
•Flexibility and control of the business
•Government regulation
•Taxation

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Forms of Business Ownership

Disadvantages of a Sole Proprietorship

•Unlimited liability
•Limited sources of funds
•Limited skills
•Lack of continuity
•Lack of Qualified Employees
•Taxation

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Forms of Business Ownership

Partnership

A form of business organization defined by the

Uniform Partnership Act as “an association of
two or more persons who carry on as co-owners
of a business for profit”
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Forms of Business Ownership

Types of
Partnerships

•General partnership
•Limited partnership

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Forms of Business Ownership

General partnership

A partnership that involves a complete sharing

in both the management and the liability of the
business
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Forms of Business Ownership

Limited partnership

A business organization that has at least one

general partner, who assumes unlimited liability,
and at least one limited partner whose liability is
limited to his or her investment in the business.
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Articles of Partnership

Legal documents that set forth the basic

agreement between partners.

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Articles of Partnership

1.Name, purpose, location

2.Duration of the agreement
3.Authority and responsibility of each partner
4.Character of partners (i.e., general or limited,
active or silent)
5.Amount of contribution from each partner
6.Division of profits or losses
7.Salaries of each partner
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Articles of Partnership

8.How much each partner is allowed to withdraw

9.Death of partner
10.Sale of partnership interest
11.Arbitration of disputes
12.Required and prohibited actions
13.Absence and disability
14.Buying and selling agreements

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Partnerships Advantages & Disadvantages

Disadvantages
Advantages •Unlimited liability
•Ease of organization •Business responsibility
•Life of the partnership
•Capital & credit
•Distribution of profits
•Knowledge & skills •Limited sources of
•Decision making funds
•Taxation of
•Regulatory controls partnerships
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Keys to Success in Business Partnerships

1.Keep profit sharing and ownership at 50-50

2.Partners should have different & complementary skill sets
3.Honest is critical
4.Maintain face-to-face communications
5.Transparency – sharing information
6.Awareness of funding constraints and limited resources
7.To be successful, you need experience
8.Family is priority; limit associated problems
9.Do not become too infatuated with “the idea” think
implementation
10.Couple optimism with realism in sales and growth
expectations

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Forms of Business Ownership

Corporations

Legal entities created by the state whose assets

and liabilities are separate from its owners..

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Forms of Business Ownership

Corporations

Typically owned by many individuals and/or

organizations who own shares of the business –
stock (shareholders or stockholders)
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Corporations

Stock & Dividends

Stock – shares of a corporation that may be bought or

sold

Dividends – profits of a corporation that are distributed

in the form of cash payments to stockholders.
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Corporations

Creating a Corporation

A Corporation is created (incorporated) under

the laws of the state in which it incorporates.
The individuals creating the corporation are
called incorporators.
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Corporations

Articles of Incorporation

Legal documents filed with basic information

about the business with the appropriate state
office (often the secretary of state).

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Articles of Incorporation
Common Elements

1.Name & address of corporation

2.Objectives of the corporation
3.Classes of stock (common, preferred, voting, nonvoting)
4.Number of shares of each class of stock
5.Financial capital required at time of incorporation
6.Provisions for transferring shares of stock
7.Regulation of internal corporate affairs
8.Address of business office
9.Names and addresses of the initial board of directors
10.Names and addresses of the incorporators

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Corporations

Types of Corporations

Private corporation
Public corporation
Quasi-public corporation
Non-profit corporation
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Corporations

Types of Corporations

Private corporation – a corporation owned

by just one or a few people who are closely
involved in managing the business

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Corporations

Types of Corporations

Public Corporation– a corporation whose

stock anyone may buy, sell, or trade.

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Corporations

Types of Corporations

Initial Public Offering (IPO) – A private

corporation who wishes to go “public” to raise
additional capital and expand. The IPO is
selling a corporation’s stock on public markets
for the first time.
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Corporations

Types of Corporations

Quasi-public corporation – Corporation

owned and operated by the federal, state,
or local government --
(NASA, U.S. Postal Service).
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 The Largest U.S. Corporations
Fortune’s 2007 rankings of America’s largest corporations
Revenues
Rank Company
($millions)
1 Wal-Mart $378,799
2 Exxon Mobil $372,824
3 Chevron $210,783
4 General Motors $182,347
5 Conoco Phillips $178,558
6 General Electric $176,656
7 Ford Motor $172,468
8 Citigroup $159,229
9 Bank of America $119,190
10 AT&T $118,928
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Fortune 500 list for 2016

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Corporations

Types of Corporations

Non-profit corporation – focuses on

providing a service rather than earning a
profit but are not owned by a government
entity (American Red Cross)
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Corporations

Elements of a
Corporation

•Board of directors
•Preferred stock
•Common stock
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Corporations

Board of Directors

Board of Directors – a group of individuals

elected by the stockholders to oversee the
general operation of the corporation who
set the corporation’s long-range objectives.
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Corporations

Board of Directors

Inside Directors – individuals who serve on the board

and are employed by the corporation (usually executives
of the corporation).

Outside Directors – individuals who serve on the board

who are not directly affiliated with the corporation
(usually Executives of other corporations).
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Corporations

Stock Ownership

Preferred stock – a special type of stock whose owners,

though not generally having a say in running the company,
have a claim to profits before other stockholders do.

Common Stock – stock whose owners have voting rights in

the corporation, yet do not receive preferential treatment
regarding dividends.

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 Corporations

• Advantages: • Disadvantages:
– Limited liability – Double taxation
– Transfer of ownership – Forming a corporation
– Perpetual life – Disclosure of
– External sources of information
funds – Employee-owner
– Expansion potential separation

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Trends in Business Ownership

•Joint Venture
•Mergers
•Acquisitions

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Other Types of Business Ownership

Joint Venture -- a partnership established

for a specific project or for a limited time
(Audi & Volkswagen joint venture)

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Other Types of Business Ownership

Merger – the combination of two companies (usually

corporations) to form a new company

Acquisition – the purchase of one company by another,

usually by buying its stock and/or assuming its debt.

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Types of Business Ownership

Major Mergers and Acquisitions Worldwide

Transaction in millions of U.S. dollars
Yea Transaction
Rank Acquirer Target
r Value
1 2000 AOL Time Warner $164,747

2 2000 Glaxo Welcome SmithKline Beecham PLc $75,961

3 2004 Royal Dutch Shell Transport & Trading $74,559

Petroleum
4 2006 AT&T BellSouth Corp $72,671

5 2001 Comcast AT&T Broadband $72,041

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Other Types of Business Ownership

Leveraged buyout (LBO) – a purchase in which a

group of investors borrows money from banks and
other institutions to acquire a company (or a division
of one) using the assets of the purchased company
to guarantee repayment of the loan.

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