Unit 7
Forms of Business Ownership
Class preparation
Read Ch. 7 "Forms of Business Ownership"
Lecture Outline
Review the complete lecture slides below for the full discussion.
Classically, there are 3 forms of setting up a business
1. Sole proprietorship
2. Partnership
3. Corporation
A) Sole Proprietorship
B) Partnership
Read Ch. 7 "Forms of Business Ownership"
Lecture Outline
Review the complete lecture slides below for the full discussion.
Classically, there are 3 forms of setting up a business
1. Sole proprietorship
2. Partnership
3. Corporation
A) Sole Proprietorship
- The most prevalent form of small business. Accounts for 75% of small businesses.
- Has one owner (You). Can't use "Inc." after the name.
- Cheap to get started and has many advantages, but doesn't lend itself to raising serious amounts of capital.
- Main disadvantage is you have unlimited personal liability for the business debts and losses.
B) Partnership
- Two or more persons own the business.
- The partners draw up a private Partnership Agreement, dealing with all aspects of running the business.
- Commonly used for accountants, law firms, medical practices. Accounts for less than 10%.
- It's a completely private arrangement and you don't have to share proprietary information with outside people. It's also a bit easier to raise capital than with a Sole Proprietorship.
- Disadvantage: each partner is liable for the business debts and losses (unless it's a Limited Partnership).
- Disadvantage: partners often disagree about things, straining friendships. Also, adding partners (or separating from partners) can be clunky - the partnership agreement may need to be rewritten, which is not always easy.
C) Corporation
- A corporation is an "artificial business entity" created with the State of California (or any other state). It has its own legal identity, separate from its founders. Has a life of its own.
- A corporation can enter into contracts, own property, buy & sell, and be sued - just like any natural person can.
- Almost all really-large firms are Corporations.
- You can start a small corporation very simply and cheaply by filing Articles of Incorporation with the California Secretary of State and paying around $100 filing fee. You can get all the documents you need from an Office Supply store or on the Internet. Alternatively, you can hire an attorney to set it up for you.
- Corporations sell "stock" to raise capital. Each owner of stock - called a "shareholder" - then gets 1 vote at the annual shareholder meeting, to elect the business Directors. The Directors are responsible for overseeing the business. We will cover this in more detail in the class.
- Important: the company Officers are responsible to the Directors, who are then responsible to the Shareholders. The Shareholders are at the top!
- The main advantages are 1) limited liability for the firm's debts and losses, and 2) a nice, flexible arrangement for raising capital.
- Possible disadvantage: you are giving up control of your business. You may still own some of the voting stock yourself, but you are taking on additional shareholders and Directors who will want a say in things.
Class experiment using Modified Monopoly board
Use Modified Monopoly to raise capital and start a business enterprise
Objectives: How to raise capital for a business enterprise, make decisions as a Board of Directors, and begin operating the business
Homework (refer to your class emails for due dates)
Use Modified Monopoly to raise capital and start a business enterprise
Objectives: How to raise capital for a business enterprise, make decisions as a Board of Directors, and begin operating the business
Homework (refer to your class emails for due dates)
| 7._business_ownership_homework_questions.docx |
| Class lecture slides - Forms of Business Ownership |