Ferrell Hirt Ferrell
A CHANGING WORLD
EIGHTH EDITION
FHF
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
part
Starting and Growing
A Business
2
CHAPTER 4 Options for Organizing Business
CHAPTER 5 Small Business, Entrepreneurship, and Franchising
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Forms of Business Ownership
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

Sole proprietorship
Partnership
Corporation
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Comparing Forms of Business
Ownership
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Sole Proprietorship
Businesses owned and operated by one
individual; the most common form of business
organization in the United States
 15-20 million in the U.S.
 Nearly three-quarters of all businesses
 Men 2x more likely than women to start own business
o
o
o
o
o
Restaurants
Hair salons
Flower shops
Dog kennels
Independent grocery stores
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Sole Proprietorship
Advantages
Disadvantages
Ease and cost of formation
Unlimited liability
Secrecy
Limited sources of funds
Distribution and use of profits
Limited skills
Flexibility and control of the business
Lack of continuity
Government regulation
Lack of Qualified Employees
Taxation
Taxation
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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
profit”
 General partnership
 Limited partnership
 Articles of Partnership
• Legal documents that set forth the basic agreement between partners
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Two Types of Partnerships
General Partnership
A partnership that involves a complete sharing in both
the management and the liability of the business
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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Partnerships
Advantages
Disadvantages
Ease of organization
Unlimited liability
Capital & credit
Business responsibility
Knowledge & skills
Life of the partnership
Decision making
Distribution of profits
Regulatory controls
Limited sources of funds
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Corporations
Legal entities created by the state whose assets and
liabilities are separate from its owners
Have most of the rights of people
Typically owned by shareholders /stockholders
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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Types of Corporations
 A corporation doing business in the state in which
it is chartered is a domestic corporation.
 When a corporation does business in other states, it is then
referred to as a foreign corporation.
 If a corporation does business outside the nation in which it is
incorporated, it is termed an alien corporation.
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Types of Corporations
Private Corporation
A corporation owned by just one or a few people who are
closely involved in managing the business
Public Corporation
A corporation whose stock anyone may buy, sell, or trade
Initial Public Offering
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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Types of Corporations
Quasi-Public Corporation
Corporation owned and operated by the federal, state,
or local government
NASA, U.S. Postal Service
Non-Profit Corporation
Focuses on providing a service rather than earning a profit but is not owned by
a government entity
Mercy Corps., The Conservation Fund
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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 information
External sources of funds
Employee-owner separation
Expansion potential
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Other Types of Business Ownership:
Limited Liability
Limited Liability Company (LLC)
Form of ownership that provides limited
liability like a corporation and taxation like a
partnership but places fewer restrictions on
members
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