4: Selecting a Form of Business Ownership
- Page ID
- 3958
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 4.1: Factors to Consider
- This page emphasizes the importance of selecting the appropriate legal form of ownership when starting a business. It highlights key considerations such as responsibilities, control, profit-sharing, taxes, skills, continuity, financing, and liability. Each ownership type—sole proprietorship, partnership, or corporation—comes with its own pros and cons, necessitating careful trade-offs based on individual preferences and priorities.
- 4.2: Sole Proprietorship
- This page discusses sole proprietorships, which constitute about 72% of U.S. businesses. They are easy and cheap to start, offering full control and profit access to the owner, who is taxed personally. However, they require diverse skills to succeed, can dissolve after the owner’s death, depend on personal financing, and carry unlimited personal liability for debts.
- 4.3: Partnership
- This page discusses partnerships in business, which account for about 10% of U.S. enterprises. It highlights shared liability managed through partnership agreements outlining contributions and responsibilities. Benefits include diverse management and easier financing, while risks involve unlimited liability and potential conflicts. Limited partnerships provide a way for investors to limit their liability. Overall, the text balances the advantages and challenges of this business structure.
- 4.4: Corporation
- This page explains that corporations are separate legal entities that can enter contracts, own property, and be taxed. Comprising 18% of U.S. businesses, they generate 82% of revenues. The structure offers benefits and drawbacks compared to sole proprietorships and partnerships, which entail more personal responsibility. Although most large firms are corporations, the structure is also common among smaller businesses.
- 4.5: Other Types of Business Ownership
- This page discusses various business ownership forms beyond sole proprietorships, partnerships, and corporations, including S-corporations, limited-liability companies, cooperatives, and not-for-profit corporations. It compares their advantages and disadvantages, highlighting limited liability and double taxation issues for corporations, while noting that sole proprietorships and partnerships lack double taxation but have unlimited liability.
- 4.6: Mergers and Acquisitions
- This page explains mergers and acquisitions (M&A), highlighting their definitions and motivations. Mergers form new companies by combining entities, while acquisitions involve one company purchasing another. Firms pursue M&A for enhanced value, complementary products, new market access, and economies of scale, illustrated by Adidas's acquisition of Reebok and the merger of US Airways and America West.
- 4.7: Cases and Problems
- This page discusses starting and managing nonprofits and businesses, focusing on mission statements, board roles, and legal structures. It compares job satisfaction in small vs. large firms and examines ethical considerations of tax-dodging locations. Case studies illustrate organizational structure challenges. Additionally, it addresses foreign investments in U.S. assets, urges reflection on potential U.S.