* * * Choosing a Form of Business Ownership Nickels * McHugh McGraw-Hill/Irwin Understanding Business, 8e * * CHAPTER ** McHugh 1-1 5-1 © 2008 The McGraw-Hill Companies, Inc., All Rights * * * Basic Forms of Business Ownership Type of Ownership Number Sales Sole Proprietorship 72% 6% Partnership 8% 13% Corporation 20% 81% Source: US Internal Revenue Service 5-2 * * * Sole Proprietorship Advantages • • • • • • Ease of start/end Be your own boss Pride of ownership Leave a legacy Retain profit No special taxes Disadvantages • • • • • • • Unlimited liability Limited financial resources Management difficulty Time commitment Few fringe benefits Limited growth Limited life span 5-3 * * * Types of Partnerships Genera l Limite d GP GP GP Passive Investor GP Passive Investor GP Passive Investo r 5-4 * * * New Forms of Partnerships • Master Limited Partnership • Traded Publicly • Taxed As A Partnership • Limited Liability Partnership 5-5 * * * Partnership Advantages • More financial resources • Shared management • Longer survival • No Special Taxes Disadvantages • Unlimited liability • Division of profits • Disagreements among partners • Difficult to 5-6 * * * Types of Corporations • Conventional ‘C’ • S Corporation • Limited Liability Companies 5-7 * * * Corporations • Private: Not Traded on Any Stock Exchange • Public: Shares are Traded on One or More Stock Exchanges • Non-Profit: Performs Public Service, Has Special Tax Considerations to Encourage Formation 5-8 * * * Corporation Advantages • Limited liability • More money for investment • Size • Perpetual life • Ease of ownership change • Ease of drawing talented employees • Separation of ownership/mgmt Disadvantages • Extensive paperwork • Double taxation • Two tax returns • Size • Termination difficult • Conflict with Stockholder & Board • Initial cost 5-9 * * * World’s Largest Corporations Citigroup General Electric American Intl Group Bank of America HSBC Group ExxonMobil Royal Dutch/Shell BP ING Group 10 Toyota Motor 11.UBS 12.Wal-Mart Stores 13.Royal Bank of Scotland 14.JP Morgan Chase 15.Berkshire Hathaway 16.BNP Paribas 17.IBM 18.Total 18.Verizon Communication 20.Chevron Texaco Source: Forbes, 2005 5-10 * * * S Corporations • No more than 100 • class of stock shareholders •