Forms of Ownership. Entrepreneurship. Mr. Rodrigues

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1 Forms of Ownership Entrepreneurship Mr. Rodrigues

2 Objectives Identify the significance of business ownership to the entrepreneurial process. Identify and discuss forms of business ownership Identify and discuss the Advantages and Disadvantages of each form Understand some key vocabulary Introduce the Stock Market

3 Forms of Ownership It is important to understand the forms of ownership prior to starting a business. Different business ideas are more appropriately served by one form or another

4 Forms of Ownership All business have a Type of Ownership Each form of ownership has different legal, financial and personal considerations There are three main Forms of Ownership: Sole Proprietorship Partnership Corporation Each one has its advantages and disadvantages in business

5 Sole Proprietorship Defined: A business that is owned by a single person who earns all the profit and assumes all the losses 95 % of all Business in US are Proprietorships Advantages Easiest to Form Start-up is simple and quick once you have the capital and legal permits to start the business Little government control low tax rates Owner has total control over the business Disadvantages Unlimited Liability he/she is personally responsible for all debts --- Everything is at Risk home, car, etc If the owner is not skilled enough to run the business, it might fail When the person dies, the business generally dies

6 Partnerships Defined: Type of business where two or more people share in the profit and losses of a business they have invested in. Types of Partnerships General Partnership Both individual's are fully liable for any actions of the business Limited Partnership One person is designated a General Partner the other is Limited to the extent of his/her investment Requires an agreement filed with the state

7 Partnerships Advantages Same as Sole Proprietorship People with complementary skills or knowledge often team up to form a partnership Disadvantages Difficult to dissolve one persons part of the business without dissolving the entire thing if one wants out, the entire thing generally ends Personality conflicts generally become a problem that ends partnerships Partners are held liable for the other partners actions Although not necessary, written partnership agreements are strongly recommended

8 Corporations Defined: A Business that is registered by a state and operates apart from its owners. A corporation exists separate from its owners Treated as an Artificial Person or Thing It pays taxes, hires people, enters into contracts, accrues debt, eats turkey Corporations can have an unlimited lifespan Individuals who start a corporation are called promoters Promoters must file Articles of Incorporation with the state Name of Corporation Promoters Names /Addresses Why and how long it will be in business Ownership of a corporation is allotted through the possession of stock.

9 Very Basic Overview of Stock Stock is considered pieces of a corporation Stock is split into shares People who buy and own stock are called shareholders or stockholders They are all partial owners of the company according to the amount of stock they hold Price follows basic economics The greater the number of Shares, the lower the price The lower the number of Shares, the higher the price The amount of control you have in the company increases with the amount of stock you own Companies issue stock to help fund the corporation

10 Types of Corporations Three Main Types 1. C-Corporation 2. Subchapter S Corporation 3. Non-Profit Corporations Type One: C-Corporation Most common form Double Taxation Entity that pays taxes on earnings Shareholders pay taxes as well Unlimited amount of ownership /shareholders possible Owners are liable only to the amount they have invested Expensive to set-up

11 Types of Corporations Type Two: Subchapter S-Corporation No double taxation Profits are only taxed once at the shareholders personal income tax rate Pass-through Taxation The corporation is not a taxpaying entity Limited to only 75 stockholders Cash businesses such as restaurants often use this form Like the C-Corp, the organization can exist for an unlimited amount of time

12 Types of Corporations Type Three Non-Profit a corporation that does not exist to make a profit. All profit made is reinvested in the organization Money can be used to pay the workers of the organization There are no private shareholders Ex: Schools, Hospitals, Churches, Cemeteries

13 Limited Liability Corporations Relatively New Business Form Hybrid Form of Ownership Corporation and Partnership Like a Corporation Owners have limited liability..they are not responsible for the companies debts Like a Partnership Pass-Through Taxation Management Flexibility Unlike the S-Corporation No Limitations on the number of Members Since they are new, there are still some issues: Untested Legally State requirements differ greatly Organization of Management often varies