Forms of Ownership

1. PowerPoint Image Slideshow
Introduction to Business
Chapter 4 FORMS OF BUSINESS OWNERSHIP

2. Learning Outcomes
1. What are the advantages and disadvantages of the sole proprietorship
form of business organization?
2. What are the advantages of operating as a partnership, and what
downside risks should partners consider?
3. How does the corporate structure provide advantages and
disadvantages to a company, and what are the major types of
corporations?
4. What other options for business organization does a company have in
addition to sole proprietorships, partnerships, and corporations?
5. What makes franchising an appropriate form of organization for some
types of business, and why does it continue to grow in importance?
6. Why are mergers and acquisitions important to a company’s overall
growth?
7. What current trends will affect the business organizations of the
future?

3. Your Company
Forms of Business Ownership
Sole
proprietorship:
Single owner who
manages the
company
Partnership:
Voluntary
agreement
between two
or more co-
owners of a
business for
profit
Corporation
Business is
considered a
legal entity
that is separate
and distinct
from its
owners
Limited
liability
company
(LLC)
Offers
limited
liability to
owners and
flexible tax
treatment

4. Table 4.1 Comparison of Forms of Business Organization

7. Going it alone: sole proprietorships
• What are the advantages and disadvantages
of the Sole Proprietor form of
ownership? View the video What Is A Sole
Proprietorship? from Quickbooks USA and
consider taking notes while you are watching
it. Can you list the main advantages to
“going it alone”? What about the major
disadvantages? Hint: There is one very
significant disadvantage when it comes to
liability of a sole proprietor.

8. 1. What are the advantages and disadvantages of
the sole proprietorship form of business
organization?
• CONCEPT CHECK
• What is a sole proprietorship?
• Why is this a popular form of
business organization?
• What are the drawbacks to being a
sole proprietor?

9. Partnerships:
Sharing the load
video

10. Partnerships:
Sharing the
load
1. Can you list the main advantages to “sharing
the load”? What about the major
disadvantages? Hint: There is one very
significant advantage when it comes to a
partnership over the sole proprietor form of
business organization.

13. Table 4.2 Perfect Partners

14. 2. What are the advantages of operating as a
partnership, and what downside risks should partners
consider?
• CONCEPT CHECK
1. How does a partnership differ from a sole
proprietorship?
2. Describe the four main types of partnerships,
and explain the difference between a limited
partner and a general partner.
3. What are the main advantages and
disadvantages of a partnership?

15. LARGEST
1. Walmart
2. Exxon Mobil
3. Berkshire Hathaway
click to see what companies
they own
4. Apple
5. United Health Group
Source: Fortune 500
America’s
Public
Corporations

16. Offers limited liability to all its stockholders
 Issues common stock as the basic
ownership interest
 Stockholders can be institutional investors
• Institutional investor: Organization that
pools contributions from investors, clients,
or depositors
Corporations

17. Elected by stockholders to
represent their interests
Oversee the operation of their
company and protect their
interests
Appoint a chief executive
officer (CEO) and other
corporate officers to manage
the company on a daily basis
Board of Directors

18. Table 4.3
Articles of
Incorporation

19. Exhibit 4.4
Organizational
Structure of
Corporations

20. Table 4.4 Advantages
and Disadvantages of
Major Types of
Business Organization

21. Table 4.4
Advantages and
Disadvantages of
Major Types of
Business
Organization,
continued

24. Disadvantages of Corporations
Corporations face numerous disadvantages:
• Double taxation of profits
• Cost and complexity of formation
• More government restrictions

25. • Privately Held
• Ownership is restricted to small
group of investors.
• Stock is not traded publicly.
• L. L. Bean, Polo, Ralph Lauren, Publix.
• Publicly Held
• Larger corporations.
• Stock is traded publicly.
• Act of initially issuing stock: “going public.”
Private vs Publicly Held Corporations

29. 3. How does the corporate structure provide advantages and
disadvantages to a company, and what are the
major types of corporations?
• CONCEPT CHECK
1. What is a corporation? Describe how
corporations are formed and structured.
2. Summarize the advantages and disadvantages
of corporations. Which features contribute to
the dominance of corporations in the business
world?
3. Why do S corporations and limited liability
companies (LLCs) appeal to small businesses?

30. Corporations: Limiting the Liability
• What are the advantages and disadvantages of the
Corporation form of ownership? View the short video
What Is A C-Corp? from Quickbooks USA and consider
taking notes while you are watching it. Also view the
longer video from Finance Kid which compares the C-
Corporation to the S-Corporation, another form of
incorporation which is popular with smaller business
enterprises.

31. Cooperatives
• Formed by people with similar interests, such as
customers and suppliers
 lower costs
 increased economic power
 share in profits
• Members/owners pay annual fees
• Common in:
• agriculture
• hardware/lumber
• grocery

32. Joint Venture:
2 or more companies form an alliance to
pursue a specific project, usually for a
specific time period

33. Corporations Limiting the
liability
1. Can you list the main advantages of incorporation? What
about the major disadvantages? Hint: There is one very
significant advantage when it comes to liability with a
corporation over both the sole proprietor and partnership
forms of business organization, but there’s one key financial
disadvantage, too.
2. What disadvantages of a traditional C-Corp does the S-Corp
help overcome? Are there any other pluses or minuses you
noted about either form of incorporation?

34. 4. What other options for business organization does a
company have in addition to sole proprietorships,
partnerships, and corporations?
• CONCEPT CHECK
1. Describe the two types of cooperatives and
the advantages of each.
2. What are the benefits of joint ventures?

35. Why is franchising growing in importance?
• Business owner does not have to start from scratch
• Buys a business concept with a proven product and
operating methods
• Franchisor provides:
• Management training and assistance
• Use of a recognized brand name, product, and operating concept
• Financial assistance

36. Franchising:
business organization in which a franchisor
supplies the product concept to the
franchisee, who sells the goods or services

37. Why would a company use mergers and acquisitions to grow?
• Companies use mergers and acquisitions for strategic reasons such as
• Growth or diversification of product lines
• Increased market share
• Economies of scale
• Financial restructuring to increase company value to stockholders

38. Franchises
Advantages
• increased opportunity to expand
(franchisor)
• recognized name, product, and
operating concept (franchisee)
• management training and
assistance (franchisee)
• financial assistance (franchisee)
Disadvantages
• loss of control (franchisor)
• costs of franchising
• restricted operating freedom
(franchisee)

39. Table 4.4 Top 10 Franchises

40. Table 4.5 Top 10 Franchises, continued

41. Table 4.5 Top 10 Franchises, continued

42. Table 4.6 Tips for Purchasing a Franchise

43. Franchising: A Popular Trend
• View this candid video posted by
Tariq Johnson, who owns two
franchise locations, and offers an
honest conversation about whether
a potential franchisee should buy a
franchise or not. After listening to
his story, you should be able to
understand several key concepts
about franchising.

44. Franchising: A Popular Trend
1. Why franchise ownership may be appealing.
2. What are the range of investments to get and keep a
franchise going.
3. Is it preferable to obtain an existing franchise location,
or a brand new one?
4. Some important personal characteristics that can help
a franchise owner to be successful (or not).

45. 5. What makes franchising an appropriate form of
organization for some types of business, and why does it
continue to grow in importance?
• CONCEPT CHECK
1. Describe franchising and the main parties to
the transaction.
2. Summarize the major advantages and
disadvantages of franchising.
3. Why has franchising proved so popular?

46. Growth Through
Mergers & Acquisitions
Merger:
The combination of 2 or more firms to form a new
company, which often takes a new corporate
identity
Acquisition:
The purchase of a corporation by another
corporation or investment group

47. Benefits of Mergers
Reduced:
costs
overlap in operations
competition
Increased:
purchasing power
market share

48. Types of Mergers
1. Horizontal mergers
• same industry, same stage of production
2. Vertical mergers
• same industry, different stages of production

49. Types of Mergers
3. Conglomerate mergers
• different industries
4. Leveraged buyouts
• corporate takeovers with borrowed money

50. Mergers and Acquisitions
• Watch this video and then
quiz yourself about your
knowledge of the three types
of mergers explained in the
video: Conglomerate, Vertical
and Horizontal.

51. Mergers and Acquisitions
1. Can you briefly describe the characteristics of each type of
merger and acquisition?
2. Details were also provided in this video about the way
government regulators use industry concentration data
known as the Herfindahl–Hirschman Index (HHI) to decide
whether or not the “marriage” between two companies is
likely to be approved or not by the Department of Justice
(DOJ).
3. Can you also explain how the HHI is computed?

52. 6. Why are mergers and acquisitions important to a
company’s overall growth?
• CONCEPT CHECK
1. Differentiate between a merger and an
acquisition.
2. What are the most common motives for
corporate mergers and acquisitions?
3. Describe the different types of corporate
mergers.

53. 7. What current trends will affect the business
organizations of the future?
• CONCEPT CHECK
1. What are some of the demographic trends
currently impacting American business?
2. As a prospective business owner, what could
you do to capitalize on these trends?
3. What other economic trends are influencing
today’s business organizations?
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