Forms of Business Ownership

9/3/22
 Form of business ownership
• Sole Proprietorships

• Partnership

• corporate structure

• Mergers

• Acquisitions

• Franchising
 Sole Proprietorships

• Going It Alone.

sole proprietorship form of business organization—a

business that is established, owned, operated, and often
financed by one person—because it was the easiest to
set up.
 Sole Proprietorships

Advantages Disadvantages
Easy and inexpensive to form Unlimited liability
Profits all go to the owner Difficulty raising capital
Direct control of the business Limited managerial expertise
Freedom from government regulation Trouble finding qualified employees
Ease of dissolution. Personal time commitment
Unstable business life
Losses are the owner’s responsibility
 Partnerships: Sharing the Load

General

On or more general
partners unlimited
labilities

Partnerships Limited

One or more limited

partners; limited liabilities
acc to their investment
limited liability
partnerships (LLP)
 Partnerships: Sharing the Load

Advantages Disadvantages
Ease of formation. Unlimited liability
Availability of capital Potential for conflicts between
partners.
Diversity of skills and expertise Complexity of profit sharing
Flexibility Difficulty exiting or dissolving a
partnership.
Relative freedom from government
control
 Corporations: Limiting Your Liability

• A corporation is a legal entity subject to the laws of the state

in which it is formed, where the right to operate as a business
is issued by state charter.
•
• A corporation can own property, enter into contracts, sue and
be sued, and engage in business operations under the terms of
its charter.

• Unlike sole proprietorships and partnerships, corporations are

taxable entities with a life separate from their owners, who
are not personally liable for its debts.
 Corporations: Limiting Your Liability

• corporations have their own organizational structure

with three important components: stockholders,
directors, and officers.
Stockholders (or shareholders) are the owners of a corporation, holding shares of stock
that provide them with certain rights

The stockholders elect a board of directors to govern and handle the overall management
of the corporation.

Hired by the board, the officers of a corporation are its top management and include the
president and chief executive officer (CEO), vice presidents, treasurer, and secretary, who
are responsible for achieving corporate goals and policies. Officers may also be board
members and stockholders
Corporations: Limiting Your Liability

Advantages Disadvantages
Limited liability Double taxation of profits
Unlimited life Cost and complexity of formation.
Tax deductions More government restrictions.
Ability to attract financing
Specialized Forms of
Business Organization
 Joint Ventures

• Two or more companies that form an alliance to

pursue a specific project, usually for a specified time
period.

• Also called as Strategic Alliance

The South Korean tech giant has entered into a joint venture with
Lucky Motor Corporation (LMC) for this ambitious project.
 Advantages Joint Ventures

Access to new sharing of risks increased access to greater

markets and and costs with a capacity resources,
distribution partner including
networks specialized staff,
technology and
finance
 Disadvantages Joint Ventures

The partners have imbalance in levels Different cultures The partners don't
different of expertise, and management provide sufficient
objectives for the investment or styles result in leadership and
joint venture assets brought into poor integration support in the
the venture by the and co-operation early stages
different partners
 Acquisition
• One company purchases a bulk of a second company's
stock, or entire company, the company is completely
absorbed and no longer exists independently.
 Advantages of Acquisition

Establishe
Establishe d Existing
Location Cost
d business Marketing employees
strategies
 Disadvantages of Acquisition

Key employee Overconfidenc Over

Loss e in ability evaluated
 Mergers/ acquisitions
• A merger occurs when two companies combine to
form a single company.

• Existing stockholders of both companies involved

retain a shared interest in the new corporation.

• ( mergers and acquisitions are so similar that they are

interchangeable)
 Type of Mergers
• horizontal merger-companies at the same stage in the
same industry merge to reduce costs, expand product
offerings, or reduce competition.
• vertical merger, a company buys a firm in its same
industry, often involved in an earlier or later stage of
the production or sales process.
• A conglomerate merger brings together companies in
unrelated businesses to reduce risk. Combining
companies whose products have different seasonal
patterns or respond differently to business cycles can
result in more stable sales
Mergers/ acquisitions
 Franchising
• Allowing another party to use a product or services
under the owner’s name.

• Franchisor: person offering the franchise

• Franchisee: person obtaining the franchise

Advantages of Franchising
established name recognition it provide to the business

training and management facilities the franchisor provides

to the business.

when a business is associated with a franchisor then the big-

business themselves help in corporate marketing of the
small industry or business they are providing support for.

bulk purchasing power it gives to small business and

industry
Disadvantages of Franchising
The creative control that a small business owner have is
often hinder when franchising in done

Inability of franchisor to provide service , advertising and

location as promised.

There are several occasions when the term and conditions

imposed by the investors and franchisors are biased and
getting a firm deal with the companies safe-guarding the
interest of both parties is a complex task.

much time is required while selecting a franchise. A

complete and through research is required to select the right
franchise and to determine whether it would work for the
business or not.
 Other Methods
• Hostile takeover: Company acquiring other company
against its will.

• Leverage Buyout: Used borrowed fund to purchase

an existing venture for cash.
Thankyou