Forms of Small Business Ownership

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• Chapter 3
• Forms of Small Business Ownership

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Chapter Outline

• Selecting the Right Legal Form.
• Why Form a Proprietorship?
• Why Form a Partnership?
• Why Form a Corporation?
• Other Forms of Business.
• How to Evaluate Legal Forms of Organization
• What You Should Have Learned.

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Relative Position of U.S. Proprietorships,
Partnerships, Corporations
Figure 3-1
A. Proprietorships are the most numerous.
B. Corporations produce the most revenue.
C. Proprietorships appear more profitable.
Distribution by total number
Distribution by revenues
Distribution by profits
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Proprietorships
Corporations
Partnerships
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Comparison of Proprietorships, Partnerships,
Corporations in Selected Industries
Corporation
Table 3-1
Proprietorships
Partnerships

• Industry
• Services 82 3 15
• Trade 70 4 26
• Construction 77 3 20
• Finance 43 32 25
• Manufacturing 57 5 38
• Percentage of firms in the industry

continued
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Comparison of Proprietorships, Partnerships,
Corporations in Selected Industries (contd)
Corporation
Partnerships
Table 3-1
Proprietorships

• Industry
• Services 14 14 72
• Trade 5 6 89
• Construction 12 6 82
• Finance 2 10 88
• Manufacturing gt1 4 96
• Percentage of industrys business receipts

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Weighing Proprietorship Advantages
Disadvantages
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Figure 3-2
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Weighing the Advantages Disadvantages of a
Partnership
Text Figure 3-3
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Types of Partnerships
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• GENERAL PARTNERSHIP
• Each partner?actually participates as equal in
  managing Bus.
• Each partner?liable for acts of other partners

• LIMITED PARTNERSHIP
• One or more general partners conduct the
  business
• One or more limited partners contribute
  capital, dont participate
• in Mgmt., but are liable for debts of
  general partners

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Weighing Advantages Disadvantages of a
Corporation
Text Figure 3-4
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Other Forms of Business

• LIMITED-LIABILITY CORPORATION (LLC) Combines
• advantages of Corp?such as liability
  protection, w/
• benefits of partnership, such as tax
  advantages.
• COOPERATIVE Business owned by operated for
  the
• benefit of patrons using its services.
• JOINT VENTURE Form of temporary partnership
  whereby
• 2-or-more firms join in single endeavor to
  make profit.

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Checklist?Evaluating Legal Organizational Forms
Text Figure 3-5
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• Under what legal Org. form is firm now
  operating?
• What are the major risks to which firm is
  subjected?
• Does the legal Org. form give proper protection
  against these
• risks?
• Does firm supplement its legal form of protection
  with public liability insurance?
• Is unlimited liability a serious potential
  problem?
• Has the present form limited financial needs in
  any way?

continued
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Checklist?Evaluating Legal Forms of Organization
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Figure 3-5

• Whats the relative incidence of firm's major
  risks?
• Are there tax advantages available by changing
  Orgs legal
• form?
• Have you considered Mgmt advantages of
  alternative legal
• forms?
• Are you aware of Subchapter S Corp. features?
  Would they
• be beneficial?
• Is firm using all advantages of present legal
  Org form?