MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
What factors should be considered before
deciding on a form of ownership?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Factors to Consider when choosing a Form of Ownership:
1.
2.
3.
4.
5.
6.
7.
8.
Tax considerations
Liability exposure
Start-up and future capital requirements
Control
Managerial ability
Business goals
Management succession plans
Cost of formation
What are the major Forms of Ownership?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Major Forms of Ownership:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Sole Proprietorship
General Partnership
Limited Partnership (LP)
Limited Liability Partnership (LLP)
Corporation
S Corporation
Professional Corporation (PC)
Limited Liability Company (LLC)
Joint Venture (JV)
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
What are the advantages of a Sole Proprietorship?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Advantages of the Sole Proprietorship:
1.
2.
3.
4.
5.
6.
Simple to create
Least costly form to begin
Profit incentive
Total decision making authority
No special legal restrictions
Easy to discontinue
What are the dis-advantages of a Sole Proprietorship?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Disadvantages of the Sole Proprietorship:
1. Unlimited personal liability
2. Limited skills and capabilities
3. Feelings of isolation
4. Limited access to capital
5. Lack of continuity of the business
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Sole Proprietorship
Claims of Sole Proprietor’s Creditors
Sole Proprietor’s Personal Assets
Define Partnership…
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Partnership Form of Ownership:
1. An association of two or more people who
co-own a business for the purpose of
making a profit.
2. Always wise to create a partnership
agreement.
3. The best partnerships are
built on trust and respect.
What are the Advantages of a Partnership?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Advantages of Partnership Organization:
1. Easy to establish
2. Complementary skills of partners
3. Division of profits
4. Larger pool of capital
5. Ability to attract limited partners
What are the Disadvantages of a Partnership?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Dis-Advantages of Partnership Organization:
1. Unlimited liability of at least one partner
2. Capital accumulation
3. Difficulty in disposing of partnership interest
without dissolving the partnership
4. Potential for personality and authority conflicts
5. Partners bound by law of agency
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
General Partnership
Form of Ownership
Claims of Partnership’s Creditors
General
Partner’s
Personal
Assets
Partnership’s Assets
What is a Limited Partnership?
General
Partner’s
Personal
Assets
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Limited Partnership
Form of Ownership:
A partnership composed of at least one general
partner and one or more limited partners.
A general partner in this partnership is treated
exactly as in a general partnership.
A limited partner has limited
liability and is treated as an
investor in the business.
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Limited Partnership
Form of Ownership:
Claims of Partnership’s Creditors
General
Partner’s
Personal
Assets
Partnership’s Assets
What is an LLP?
Limited
Partner’s
Personal
Assets
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Limited Liability Partnerships
Form of Ownership
1. All partners in the business are limited partners.
2. Gives the advantage of limited liability for the debts of
the partnership.
3. Does not pay taxes – income is passed through to the
limited partners who pay taxes on their share of the
company’s income.
4. Limited to certain professions… attorney, cpas, etc.
Define Corporation.
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Corporation Form of Ownership
1. A separate legal entity from its owners.
2. Unlimited Life
3. Taxable
What Types of Corporations are there?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Corporation Form of Ownership
Types of corporations:
1. Domestic – a corporation doing business in the
state in which it is incorporated.
2. Foreign – a corporation doing business in a state
other than the state in which it is incorporated.
3. Alien – a corporation formed in another country
but doing business in the United States.
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Corporation Form of Ownership
Types of corporations:
1. Publicly held – a corporation that has a large
number of shareholders and whose stock
usually is traded on one of the large stock
exchanges.
2. Closely held – a corporation in which shares are
controlled by a relatively small number of
people, often family members, relatives, or
friends.
What are the advantages of a corporation?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Advantages of Corporation:
1. Limited liability of stockholders
2. Ability to attract capital
3. Ability to continue indefinitely
4. Transferable ownership
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Corporation
Claims of Corporation’s Creditors
barrier
Shareholder’s
Personal Assets
Corporation’s Assets
barrier
Shareholder’s
Personal Assets
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Partnership
Claims of Partnership’s Creditors
Corporate
General
Partner
Assets
Partnership’s Assets
BARRIER
Corporate Shareholders
What are Disadvantages of Coropration?
Limited
Partner’s
Personal
Assets
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Dis-Advantages of Corporation:
1. Cost and time of incorporation process
2. Double taxation
3. Potential for diminished managerial incentives
4. Legal requirements and regulatory “red tape”
5. Potential loss of control by founder(s)
What informaiton goes into the Articles of Incorporation?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Articles of Incorporation/Charter:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Name
Purpose
Life Span… or unending
Incorporator(s) Information
Place of Business
Shares Authorized
Capital Required
Preemptive Rights – Anti-dilutive Provisions
Shareholder Restrictions
Officer(s) Information
Rules - Bylaws
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
What is an S Corporation?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
S Corporation
1. No different from any other corporation from a
legal perspective.
2. An S corporation is taxed like a partnership, passing
all of its profits (or losses) through to individual
shareholders.
3. To elect “S” status, all shareholders must consent,
and the corporation must file with the IRS within
the first 75 days of its tax year.
What are the Advantages of an S Corp?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
S Corporation Advantages:
Retains all of the advantages of regular corporation:
1. Continuity of existence
2. Transferability of ownership
3. Limited personal liability for owners
What are the Dis-Advantages of an S Corp?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
S Corporation Dis-Advantages:
1. Entrepreneurs considering both S and C status
should review the impact of the decision on their
companies.
2. S corporation status is usually beneficial to start-up
companies anticipating net losses because founders
can use the loss to offset other income, and lower
their tax bill.
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
S Corporation
Claims of S Corporation’s Creditors
barrier
S Corporation’s Assets
Shareholder’s
Personal Assets
barrier
Shareholder’s
Personal Assets
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Limited Liability Company (LLC):
Resembles an S Corporation but is not subject to the
same restrictions.
Two documents required:
1. Articles of organization
2. Operating agreement
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Limited Liability Company
Claims of LLC’s Creditors
barrier
barrier
LLC’s Assets
Member’s
Personal Assets
Member’s
Personal Assets
What is a Professional Corporation?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Professional Corporation:

Designed for professions – lawyers, doctors,
dentists, accountants and other professionals

Created in the same manner as a corporation

Identified by the abbreviations:
►
P.C. – Professional Corporation
►
P.A. – Professional Association
►
S.C. – Service Corporation
What Limitation must a PC comply with?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Professional Corporation Limitations:
1.
2.
3.
4.
Shares Owned By Licensed Professionals.
At least One Incorporator must be Licensed.
At least One Directory must be Licensed.
Articles must designate Personal Services to be
provided.
5. Licensing Board Certifies that All Shares are held by
Duly Licensed Individuals.
What is a Joint Venture?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Joint Venture:
Much like a partnership, but it:
1. Is formed for a specific purpose
2. Has a beginning and an end
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Is there a Form of Ownership that is better than the others?
Is there a Form of Ownership that is worse that the others?
Is there a Form of Ownership that is evil?
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
Factors to Consider when choosing a Form of Ownership:
1.
2.
3.
4.
5.
6.
7.
8.
Tax considerations
Liability exposure
Start-up and future capital requirements
Control
Managerial ability
Business goals
Management succession plans
Cost of formation
MANA 3325 – Thurburn
Lecture 09-12-13 Slides
Forms of Business Ownership
What would be the best form of ownership for…
1. A Local Restaurant?
2. A Food Truck Business?
3. A Lawn Care Business?
4. A Chiropractor?
5. A Software Company?
6. A Consulting/Coaching Business?