BUSINESS OWNERSHIP
Concept: Introduce students to the major forms of business ownership and
the advantages and disadvantages of each.
Objectives



Understand what a Proprietorship is.
Understand what a Partnership is.
Understand what a Corporation is.
BUSINESS OWNERSHIP
1. Discuss a Proprietorship: How is it formed? What are the advantages
and disadvantages?
o Have students suggest which businesses, or types of businesses,
are likely to be Proprietorships. Examples, small shops, butchers,
home businesses, independent outlets….
2. Discuss Partnerships. How are they formed? What are the advantages
and disadvantages?
o Talk about the fact that partnerships are common in professions lawyers, accountants, architects, surveyors, estate agents, vets,
etc.
o What are the implications of not having a Partnership agreement?
o Use a scenario to illustrate personal liability:
Suppose you form a partnership with two other people. What if one
of your partners fires an employee who then sues the partnership
for wrongful discharge? And what if the jury returns a verdict for
$100,000 for the employee? You and your two partners will each
be personally responsible for paying the full $100,000. To satisfy
the six-figure verdict, the fired employee can go after your personal
assets as well as partnership assets. Your home, your personal
bank accounts and your car are all at risk.
3. Discuss Corporations: How are they formed? What are the advantages
and disadvantages?
 Solidify the concept that a corporation is a separate entity
 Talk about shareholders and the buying of stock
 Talk about the Board of Directors and the relationship to
company management
Using examples from the Yellow Pages, ask students to think about how
these businesses are owned, how they are run and how financing was raised
(this can be done in the groups or as a class). Discuss responses to ensure
students understand the rational for each choice.
Name__________________________
Class: _________________________
Date_________________
Business Ownership
There are three distinct ways to form a business and each method has particular
variations, advantages, and disadvantages depending on the circumstances of the business
and the industry. The following is a summary of each of three main categories of
ownership.
PROPRIETORSHIP (often called Sole Proprietorship)
This is the form a business takes when no other form is pursued: It is the default format.
In a proprietorship, even though the business records must be kept separate from the
owner’s personal financial information, the business is part of the owner:
• If the business is sued, the owner is sued
• If the owner dies, the business ceases to exist and the assets become part of the
owner’s estate
• If the business makes money, the owner reports it as “income from business” on
his or her personal tax return.
A proprietorship is simple; it requires nothing more than the filing of the requisite civic,
state, or federal business licenses. The cost of this simplicity though, is the legal liability
placed on the owner for the operations of the business. The lack of hassle and high degree
of autonomy in a proprietorship are usually enough to convince the first-time business
owner to start a proprietorship.
PARTNERSHIP
This is a proprietorship that is owned by more than one person. Partnerships are often
formed as a way to access the capital and expertise of more than one person. There is no
requirement for additional paperwork and the partnership arrangement can be created in a
variety of ways:
• When more than one person contributes assets
• When more than one person performs work of the business (controlling,
directing, etc…)
• When more than one person withdraws profits from the business.
Because there is no official paperwork required, a partnership can come about
http://www.moneyinstructor.com/inadvertently (by the actions just mentioned) and
without anything to the contrary, the ownership is assumed to be equal. This means that
any partner can commit the business to obligations or be sued for debts of the business.
To avoid these obvious pitfalls, a Partnership Agreement is often drawn up specifying
the proportion of ownership, duration of the agreement, conditions for withdrawal,
division of responsibilities, and disposition of the business in the event of a partners’
death.
Copyright 2007 Money Instructor Name__________________________ Date_________________
A Limited Partnership is a variation where the liability of the business is limited to one
or some of the partners. In this situation, there must still be a general partner who has no
liability limit. The tax implications of a partnership are the same as a proprietorship
whereby each partner reports drawings on his or her personal income tax report.
A Joint Venture is a general partnership, which is created with a specific project in
mind. It generally dissolves once the project has been completed. Members of the joint
venture are exposed to full legal liability.
CORPORATION
This the most formal path of business ownership and it requires paying a fee to set up a
business entity that is separate from the owners. The law recognizes a corporation as an
entity that is separate from its owners. Features of the Corporation include:
• The owners of a corporation are called shareholders
• Shareholders buy stock in the Corporation
• The shareholders elect a Board of Directors to oversee the major policies and
decisions
• The corporation has a life of its own and does not dissolve when ownership
changes
• Shareholders are not personally liable for the debts of the business (owners may
be required to waive this protection when securing debt or equity financing)
• A corporation is a separate legal entity that files its own income taxes
Characteristics of Business Organizations:
Sole Proprietorship
Partnership
Owner(s)
Only one
owner
Limited by
owner’s life or
choice
Yes
Two or more partners Many shareholders
Business Life
Owner Personally
Liable for Business
debts
Business records
separate from
owner(s)
Advantages
Corporation
Limited by owner’s
life or choice
Unlimited life
Yes
No
Yes
Yes
Yes
• Easy
to organize
•
Owner has
total control
•
Owner
receives all
income
• Easy to
organize
• Partners
receive all income
• More than
one person
contributes funds to
the
• Shareholders
have limited liability
• Funds can be
raised through the sale
of stock
Copyright 2007 Money Instructor Name__________________________ Date_________________
Continuity of business despite ownership changes
business
• Additional expertise
Disadvantages
• Owner is
responsible for
business liability
• Owners
often have difficulty
raising funds
• Life of
business limited to
owner
• Partners all
have liability
• Partners will
disagree on some
business decisions
• Must share
profits with others
• The act of
incorporation takes time
and money
• Many
regulations that must be
followed
Copyright 2007 Money Instructor Name__________________________ Date_________________
Student Worksheet – Business Ownership
1. What are the three main types of business ownership?
2. Of the three types of business ownership, which one is the most difficult to set
up?
3. The owners of a Corporation are called ___________ ________.
4. Which of the following is a characteristic of a Joint Venture?
a. There is no personal liability
b. The partnership is formed for a specific project
c. The partnership lasts indefinitely
d. All of the above
5. List three ways a partnership can be formed without a Partnership Agreement.
6. Give two reasons why you would consider forming a Corporation versus a
Partnership or Proprietorship.
7. In a Corporation, who controls and directs the business?
a. Managers
b. Employees
c. Stockholders
d. Board of Directors
8. In a Proprietorship, the ____ ______ controls and directs the business.
9. In a Corporation, the ____ ____ __ elect the Board the Directors.
Copyright 2007 Money Instructor Name__________________________ Date_________________
Worksheet ANSWERS – Business Ownership
1. What are the three main types of business ownership?
Proprietorship
Partnership
Corporation
2. Of the three types of business ownership, which one is the most difficult to set
up?
Corporation
3. The owners of a Corporation are called ___________shareholders________.
4. Which of the following is a characteristic of a Joint Venture?
e. There is no personal liability
f. The partnership is formed for a specific project
g. The partnership lasts indefinitely
h. All of the above
5. List three ways a partnership can be formed without a Partnership Agreement.
When more than one person contributes assets
When more than one person controls or directs the business
When more than one person withdraws profits from the business
6. Give two reasons why you would consider forming a Corporation versus a
Partnership or Proprietorship.
7. In a Corporation, who controls and directs the business?
a. Managers
b. Employees
c. Stockholders
d. Board of Directors
8. In a Proprietorship, the ____owner______ controls and directs the business.
9. In a Corporation, the ____shareholders____ __ elect the Board the Directors.