Chapter
5
Selecting a Form of
Business Ownership
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Learning Objectives
Existing Firms
Sole Proprietor
Selecting a Form of
Business
Risk & Return Ownership Partnership
Corporation
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Selecting a Form
of Business
Ownership
The Key Decisions in Running
a Business
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole
Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Selecting a Form
Insert Chart from page 159
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Single Owner
Copyright © 2007 South-Western. All rights reserved.
10%
Profit
70% of all
Businesses
Sole
Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Sole Proprietorship
Selecting a Form
of Business
Ownership
Sole
Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Sole Proprietorships
- Earnings
- Losses
- Easy Organization
- Unlimited Liability
- Control
- Limited Funds
- Low Taxes
- Limited Skills
Advantages
Disadvantages
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Partnership
General Partnership
Limited Partnership
General Partners
Limited Partners
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Partnerships
- Additional Funds
- Shared Control
- Shared Losses
- Unlimited Liability
- Specialization
- Shared Profits
Advantages
Disadvantages
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
S-Corporations
Limited Liability
Personal Tax
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Limited Liability Company LLC
Limited Liability
Partnership Benefits
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Corporations
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Stockholder Returns
Dividends
Stock Price
Publicly Held
Privately Held
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Corporations
- High Expense
- Limited Liability
- Financial Disclosure
- Access to Funds
- Agency Problems
- Ownership Transfer
- High Taxes
Advantages
Disadvantages
Capital Gains
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Double Taxation
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Comparing Business Forms
No Magic Answer
www.sbaonline.sba.gov
Can Change
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Equity
After-tax
earnings
Owner’s Equity
Return on
Equity
Firm “A”
Firm “B”
Partnership
Corporation
$15 million
$15 million
$100 million
$300 million
15%
5%
Copyright © 2007 South-Western. All rights reserved.
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Ownership & Risk
# of Owners
and funds
Selecting a Form
of Business
Ownership
(R1)
Risk
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Owning an Existing Business
Family Business
Existing Business
Franchise
Copyright © 2007 South-Western. All rights reserved.
Selecting a Form
of Business
Ownership
Franchise
Distributorship
Sole Proprietor
Partnership
Corporation
Risk & Return
Existing Firms
Chain Style
- Proven Style
- Sharing Profits
- Name Recognition
- Less Control
- Financial Support
Advantages
Disadvantages
Copyright © 2007 South-Western. All rights reserved.