TYPES OF

BUSINESS
OWNERSHIP
CHAPTER 7
• We need to understand the advantages and
disadvantages of various types of
businesses so that they can choose the one
that best suits their needs.
SOLE PROPRIETORSHIP

• The easiest and most popular form of business ownership is

the sole proprietorship.

sole proprietorship
a business that is owned and operated
by one person
SOLE PROPRIETORSHIP

• The owner of a sole proprietorship:

receives the profits,

incurs any losses, and
is liable for the debts of the business.
SOLE PROPRIETORSHIP

• In a sole proprietorship the owner must decide how much

liability protection he or she needs.

liability protection
insurance against the debts and
actions of a business
 ADVANTAGES

• Sole proprietorship is easy and inexpensive to create.

The owner has complete authority over all business activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at the personal rate of the owner.
 DISADVANTAGES

The owner has unlimited liability.

Raising capital is more difficult.

The business is totally reliant on the skills and abilities of the owner.

The death of owner dissolves the business unless

there is a will to the contrary.
DISADVANTAGES

• The biggest disadvantage of a sole proprietorship is

financial.
• In this form of business ownership, the owner has
unlimited liability
unlimited liability.
full responsibility for all debts and
actions of a business
PARTNERSHIP

• A partnership draws on the skills, knowledge, and

financial resources of more than one person.

partnership
an unincorporated business with two
or more owners who share the
decisions, assets, liabilities, and
profits
 PARTNERSHIP
General vs Limited
The law requires that all
partnerships have at least one
general partner.
A partnership may be set up so
that all of the partners are
general partners.
general partner
a participant in a partnership who has
unlimited personal liability and takes
full responsibility for managing the
business
PARTNERSHIP

• Some partnerships include a limited partner.

limited partner
a partner in a business whose liability
is limited to his or her investment; a
limited partner cannot be actively
involved in managing the business
 PARTNERSHIP

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

Partners can share ideas.

 PARTNERSHIP

It is difficult to dissolve one partner’s interest without

dissolving the partnership.

There may be personality conflicts.

Partners can be held liable for each others’ actions.

 CORPORATIONS

In a corporation, the owners of the business are protected

from liability for the actions of the company.

There are three types of corporations:

•C-Corporation
•Subchapter S Corporation
•Nonprofit Corporation
corporation
a business that is registered by a state
and operates apart from its owners; it
issues shares of stock and lives on
after the owners have sold their
interest or passed away
C- CORPORATIONS

• A C-corporation is the most common corporate form.

C-corporation
an entity that pays taxes on earnings;
its shareholders pay taxes as well

• C-Corporations: In smaller corporations, the founders

generally are the major shareholders.
shareholders
the owners of a corporation
C-CORPORATIONS

ADVANTAGES
status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages
C-CORPORATIONS

ADVANTAGES
Corporate shareholders have limited liability, but some
banks require officers to personally guarantee the debts of
the company.

limited liability
partial responsibility of a corporate
shareholder; he or she is responsible
only up to the amount of his or her
individual investment
C-CORPORATIONS

DISADVANTAGES
expensive to set up

income more heavily taxed

subject to double taxation on income

pays taxes on profits

stockholders taxed on dividends

NON-PROFIT CORPORATIONS

• A nonprofit corporation must fall within one of four

categories:
• religion
nonprofit corporation
• charity a legal entity that makes money for
reasons other than the owner’s profit;
• public benefit
it can make a profit, but the profit
• mutual benefit must remain within the company
COMMON
DEPARTMENTS