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    Selecting A Form of Business Ownership: Week 4

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    Burhan Ahmed Mayo
    Here are some factors for Jayden to consider in this decision: - Bringing in a partner will provide needed capital and operational help, allowing expansion. However, it means sharing ownership and profits. - The partner's flying record could increase liability risks. As sole proprietor, Jayden bears all risk himself. With a partner, their actions could impact him. - A formal partnership agreement could help address risk issues like ensuring safe piloting standards. But some increased liability is inevitable. - Continuing solo preserves full control and profits, but limits growth potential without more capital. He'd need an alternative source of funds and help. - Overall it's a balancing of risk tolerance, growth goals, and ability

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    Selecting A Form of Business Ownership: Week 4

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    Burhan Ahmed Mayo
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    Here are some factors for Jayden to consider in this decision: - Bringing in a partner will provide needed capital and operational help, allowing expansion. However, it means sharing ownership and profits. - The partner's flying record could increase liability risks. As sole proprietor, Jayden bears all risk himself. With a partner, their actions could impact him. - A formal partnership agreement could help address risk issues like ensuring safe piloting standards. But some increased liability is inevitable. - Continuing solo preserves full control and profits, but limits growth potential without more capital. He'd need an alternative source of funds and help. - Overall it's a balancing of risk tolerance, growth goals, and ability

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    Here are some factors for Jayden to consider in this decision: - Bringing in a partner will provide needed capital and operational help, allowing expansion. However, it means sharing ownership and profits. - The partner's flying record could increase liability risks. As sole proprietor, Jayden bears all risk himself. With a partner, their actions could impact him. - A formal partnership agreement could help address risk issues like ensuring safe piloting standards. But some increased liability is inevitable. - Continuing solo preserves full control and profits, but limits growth potential without more capital. He'd need an alternative source of funds and help. - Overall it's a balancing of risk tolerance, growth goals, and ability

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    34 views24 pages

    Selecting A Form of Business Ownership: Week 4

    Uploaded by

    Burhan Ahmed Mayo
    Here are some factors for Jayden to consider in this decision: - Bringing in a partner will provide needed capital and operational help, allowing expansion. However, it means sharing ownership and profits. - The partner's flying record could increase liability risks. As sole proprietor, Jayden bears all risk himself. With a partner, their actions could impact him. - A formal partnership agreement could help address risk issues like ensuring safe piloting standards. But some increased liability is inevitable. - Continuing solo preserves full control and profits, but limits growth potential without more capital. He'd need an alternative source of funds and help. - Overall it's a balancing of risk tolerance, growth goals, and ability

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    Week 4

    Selecting a Form of
    Business Ownership

    Chapter Objectives
    Identify the questions to ask in choosing the
    appropriate form of ownership for a business.
    Describe the sole proprietorship form of
    organization, and specify its advantages and
    disadvantages.
    Identify the different types of partnerships and
    explain the importance of a partnership
    agreement.
    Describe the advantages and disadvantages of
    the partnership organization.

    Chapter Objectives
    Explain how corporations are formed and how
    they operate.
    Discuss the advantages and disadvantages of the
    corporate form of ownership.
    Examine S-corporations, limited-liability
    companies, cooperatives, and not-for-profit
    corporations.
    Explain why companies are motivated to merge
    or acquire other companies.

    Factors to Consider when Selecting Legal Form of


    Organization

    1.
    2.
    3.
    4.
    5.
    6.

    How much control?


    Share profits?
    Liability exposure?
    Financing needs?
    Business set-up and reporting
    costs?
    Business continuance?

    Forms of Business Organization

    SOLE PROPRIETORSHIP
    Business owned by only one person.
    GENERAL PARTNERSHIP

    Business owned jointly by two or more people.


    CORPORATION
    Business that is a legal entity separate from the
    parties who own it.
    4

    Types Of Business

    Sole Proprietorship

    Sole Proprietorship

    General Partnership and Unlimited Liability

    Partnership Agreement

    Cash/Contribution of partners
    Division of income/loss
    Partner responsibilities
    Conditions for sale
    Conditions for dissolving
    Conditions for settling disputes

    liablefor actions of all of the partners.


    9

    General Partnership
    Advantages and Disadvantages

    10

    Limited Partnership

    Limited

    Limited

    Partner

    Partner

    General
    Partner
    Limited

    Limited

    Partner

    Partner

    11

    Corporation
    A corporation is a legal entity that is entirely
    separate from the parties who own it (called
    shareholders).
    A corporation can:
    Enter into binding contracts
    Buy and sell property
    Sue and be sued
    Be held Responsible for its actions
    Pay income and other taxes

    12

    Characteristics of Shareholders

    Corporations are owned by shareholders.


    Owners of a corporation invest money
    in the business by buying shares of stock.
    Ownership percentage is represented by
    percent of total shares of stock owned.
    For example, if the corporation has 100
    shares of stock and you own 30, you own
    30% of the corporation.

    13

    Characteristics of Board of Directors


    Responsible for governing corporation
    Most are from outside the company
    Oversees major policies and decisions
    Sets goals for the corporation
    Holds management accountable
    for achieving corporate goals
    Hires and evaluates the Chief Executive Officer
    (CEO)
    Approves payment of dividends (earnings
    distributed to shareholders)

    14

    Corporations

    15

    Privately-Held Corporation

    Stock is held by only a few individuals, not to be


    sold to the general public

    16

    S-Corporation
    Chosen to limit the liability of its owners and
    avoid having their earnings taxed twice (first at
    corporate level and then at personal level).
    A disadvantage is that the owners have no
    flexibility in the way profits are divided among
    the owners.
    In an S-corporation, profits must be allocated
    based on percentage ownership.

    17

    Limited Liability Corporation (LLC)


    Chosen to limit the liability of its owners and
    avoid having their earnings taxed twice.
    Looks a lot like an S-Corporation, but theres an
    important difference:
    Profits do not have to be allocated to owners
    based on percentage ownership. Members can
    distribute profits in any way they want.

    18

    Cooperative

    A COOPERATIVE is also known as a Co-Op


    Owned by those using its services.
    Those who belong, join together to market
    products, purchase supplies, and provide services
    for members.
    If cooperative makes a profit, it shares its
    financial success with its members.

    19

    Not-For-Profit Corporation
    Sometimes called a non-profit organization
    Formed to serve a public purpose rather than for
    financial gain
    Exempt from federal and state income taxes
    Contributions to the not-for-profit corporation are
    tax deductible to donor

    20

    Mergers and Acquisitions


    Merger: two companies combine to form a new
    company.
    Acquisition: purchase of one company by another
    Motives:
    Gain complementary products.

    Attain new markets.


    Realize more efficient economies of scale.
    Hostile Takeover: a takeover resisted by the
    targeted companys management and its Board.

    21

    Suppose that youre trying to decide which legal


    form of ownership is best for you and the business
    that you want to start up. What are the important
    questions you should ask yourself while making
    this decision?

    Youll probably want to explore all of the following questions:


    How much control do I want? Do I want to own the company myself or share ownership with others?
    Do I want to share my profits with others?
    How much liability exposure am I willing to accept? Am I willing to risk my personal assets for the business?
    What are my financing needs? Can I furnish the money to start the business myself or will I need some
    investment from other people?

    What am I willing to do to set up and operate my business? Do I want to minimize the costs of getting
    started and avoid complex government reporting requirements?
    Should it be possible for the business to continue without me? Is it important that the business survives me?
    You would also want to consider whether you want to avoid paying business income taxes and whether
    you have all the skills needed to run the business.

    Do you have all the skills needed to run the business?


    How much liability exposure are you willing to accept?

    Activity

    Jayden Collins, owner of Grand Cannon


    Helicopter Adventures, wants to expand his
    business. To do this, he needs an influx of cash
    and help running the business. Should he bring
    in his friend who has money, is good at
    handling day-to-day operations, but has a less
    than perfect flying record? Or should he
    continue to fly solo?

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