Chapter
6
Business
Ownership
Legal Forms of Business
Ownership
3
different ways you can own a
business:
1. Sole proprietorship
2. Partnership
3. Corporation
Sole Proprietorship
Sole Proprietorship =
Business owned by one
person that is not
incorporated.
No
legal formalities required
(no legal forms to fill out and
register with the state)
Risks and Liabilities
Law
states the business and owner
are one.
The
business cannot own property
or any asset in its name, which
means all “business” assets are the
personal assets of the owner.
Lawsuits
will personally name the
owner as the defendant
Advantages of sole proprietorships
 Easy
to open
 Profits for the owner
 Pride and satisfaction of ownership
 Privacy
 Control and flexibility
 Tax advantages
 Easy to close
 Energy and resources can be devoted
to business matters instead of legal
necessities
Disadvantages of sole
proprietorships
Unlimited
liability -- full responsibility
for your company’s debts.
--You could lose your personal savings,
your property, or even your car if your
business has debts it cannot repay.
Limited
capital
Limited capabilities
Uncertain life
Partnership
Partnership:
Business owned by
two or more persons that is not
incorporated.
No
legal formalities required
Best
thing partners can do is to
prepare and use a written
partnership agreement.
Partnership Agreement
Describes the partner’s relationship to each
other. Specific elements that should be
included:
1. Name and location of the
business
2. Purpose of the business
3. Identity of the partners
4. Capital contributions
Partnership Agreement continued.
5. Share of ownership
6. Sharing of profits and losses
7. Management of the business
8. Financial issues
9. Other issues
Risk and Liabilities
Unlimited personal
liability
The other partners
Each partner’s share of
liability is not limited to
his/her normal share of
partnership losses
Advantages of general
partnerships
Easy
to start
Increased capital
Combined capabilities
Increased goodwill
Decreased competition
Reduced expenses
Tax advantages
Disadvantages of general
partnerships
Unlimited liability
Limited capital
Difficult to share profits
Disagreements
Difficult to end
Uncertain life
Corporations
Corporations
– business owned by
many people but treated by law as a
separate entity.
Artificial
person.
Many legal formalities required to start
 Must
obtain a corporate charter. To do so,
Articles of Incorporation must be filed.
Stock
= shares of ownership in your
corporation
Advantages of a Corporation
Limited
liability - shareholders have
immunity from liabilities because of
the corporate veil. ---The veil serves as a wall
between the corporation and all corporate
obligations on one side, while the shareholders and
their individual assets are safe and protected on
the other side.
Unlimited
life
Easy to transfer ownership
Skilled personnel
Financial power
Disadvantages of a Corporation
Difficult to form and operate
Separate owners and managers
More complex requirements
Taxation
Other Ways to do Business
 Franchise
= a contractual agreement to
sell a company’s products or services in a
designated geographic area.
 Nonprofit organization = type of business
that focuses on providing a service rather
than making a profit.
 A cooperative is an organization owned
and operated by its members for the
purpose of saving money on the
purchase of certain goods and services
Types of Businesses
Producer
= a business that gathers
raw products in their natural state.
 Example:
farmer growing wheat
Processors
change raw materials into
more finished products
 Example:
wheat is turned into flour
Manufacturers
= businesses that make
finished products out of processed
goods.
 Example:
automobile plant that makes car out of steal
Types of Businesses Continued
 Intermediary
is any business in a distribution
channel between the manufacturer and the
consumer.
1.
Wholesaler - distributes goods.
Wholesalers buy goods from manufacturers in huge
quantities and resell them in smaller quantities to their
customers, usually other companies.
2.
Retailer - purchases goods from a wholesaler
and resells them to the consumer, or the final
buyer of the goods.
 Service
businesses provide services rather than
goods. Examples are hairstyling or car repair.