Chapter Four. Choosing a Form of. Copyright Cengage Learning. All rights reserved. 4 1

Size: px

Start display at page:

Denis Wilkins
6 years ago
Views:

2 Learning Objectives 1. Describe the advantages and disadvantages of sole proprietorships. 2. Explain the different types of partners and the importance of partnership p agreements. 3. Describe the advantages and disadvantages of partnerships. 4. Summarize how a corporation is formed. 5. Describe the advantages and disadvantages of a corporation. Copyright Cengage Learning. All rights reserved. 4 2

3 Learning Objectives 6. Examine special types of corporations, including S-corporations, limited-liability liability companies, government-owned corporations, and not-for-profit corporations. 7. Discuss the purpose of a cooperative, joint venture, and syndicate. 8. Explain how growth from within and growth through mergers can enable a business to expand. Copyright Cengage Learning. All rights reserved. 4 3

4 Sole Proprietorships A business that is owned (and usually operated) by one person The simplest form of business ownership and the easiest to start Many large businesses began as a small struggling sole proprietorships The most widespread form of business ownership Copyright Cengage Learning. All rights reserved. 4 4

Reasons People Go into Business for Themselves

Copyright 2006 by Houghton Mifflin Company.

5 Reasons People Go into Business for Themselves Source: Timothy S. Hatten, Small Business Management: Entrepreneurship and Beyond, 3 rd ed. Copyright 2006 by Houghton Mifflin Company. Used by permission. Data from A Small Business Primer. Copyright Cengage Learning. All rights reserved. 4 5

7 Relative Percentages of Sole Proprietorships, Partnerships, and Corporations in the U.S. Sole proprietorships are most common in retailing, agriculture, and the service industries Source: U.S. Bureau of the Census, Statistical Abstract of the United States, Washington, D.C., 2008, p. 487 ( Copyright Cengage Learning. All rights reserved. 4 7

8 Advantages and Disadvantages of Sole Proprietorships ADVANTAGES Ease of start-up and closure Pride of ownership Retention of all profits Flexibility of being your own boss No special taxes DISADVANTAGES Unlimited liability A legal concept that holds a business owner personally responsible for all the debts of the business Lack of continuity Lack of money Limited management skills Difficulty in hiring employees Copyright Cengage Learning. All rights reserved. 4 8

9 Class Exercise You want to own and manage your own business. To help you evaluate your chances of success, answer these questions. Do you have any experience in a business like the one you want to start? Have you worked for someone else as a supervisor or manager? Have you saved any money? How much? Do you know how much money you will need to get your business started? Do you know how much credit you can get from your suppliers and bankers? Do you know the good and bad points about going it alone, having a partner, and incorporating your business? What do you know about your potential customer? Copyright Cengage Learning. All rights reserved. 4 9

10 Partnerships A voluntary association of two or more persons to act as coowners of business for profit Less common form of ownership than sole proprietorship or corporation No legal limit on the maximum number of partners; most have only 2 Large accounting, law, and advertising partnerships have multiple partners Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner Copyright Cengage Learning. All rights reserved. 4 10

11 Types of Partners General partner A person who assumes full or shared responsibility for operating a business General partnership: a business co-owned by two or more general partners who are liable for everything the business does Limited partner A person who contribute capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership Limited partnership: a business co-owned by one or more general partners who manage the business and limited partners who invest money in it Master limited partnership (MLP): a business partnership that is owned and managed like a corporation but taxed like a partnership Copyright Cengage Learning. All rights reserved. 4 11

12 The Partnership Agreement Articles of partnership p An agreement listing and explaining the terms of the partnership Agreement should state Who will make final decisions What each partner s duties will be How much each partner will invest How much profit or loss each partner receives or is responsible for How the partnership p can be dissolved Copyright Cengage Learning. All rights reserved. 4 12

13 Advantages and Disadvantages of Partnerships ADVANTAGES Ease of start-up Availability of capital and credit Personal interest Combined business skills and knowledge Retention of profits No special taxes DISADVANTAGES Unlimited liability Management disagreements Lack of continuity Frozen investment Copyright Cengage Learning. All rights reserved. 4 13

14 Corporations An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts t There are 5.6 million corporations in the U.S. They comprise only 20% of all businesses, but they account for 83.8 % of sales revenues Copyright Cengage Learning. All rights reserved. 4 14

16 Corporate Ownership Corporate ownership Stock The shares of ownership of a corporation Stockholder A person who owns a corporation s stock Closed Cosedcopoa corporationo A corporation whose stock is owned by relatively few people and is not sold to the general public Open corporation A corporation whose stock is bought and sold on security exchanges and can be purchased by any individual Copyright Cengage Learning. All rights reserved. 4 16

19 Forming a Corporation (cont d) Where to incorporate Businesses can incorporate in any state they choose Some states offer fewer restrictions, lower taxes, and other benefits to attract new firms Domestic corporation A corporation in the state in which it is incorporated Foreign corporation A corporation in any state in which it does business except the one it which it is incorporated Alien corporation A corporation chartered by a foreign government and conducting business in the U.S. Copyright Cengage Learning. All rights reserved. 4 19

20 Forming a Corporation (cont d) Articles of incorporation A contract t between the corporation and the state t in which the state recognizes the formation of the artificial person that is the corporation Articles of incorporation includes Firm s name and address Incorporators names and addresses Purpose of the corporation Maximum amount of stock and types of stock to be issued Rights and privileges of stockholders Length of time the corporation is to exist Copyright Cengage Learning. All rights reserved. 4 20

21 Forming a Corporation (cont d) Stockholders rights Common stock Stock owned by individuals or firms who may vote on corporate matters but whose claims on profit and assets are subordinate to the claims of others Preferred stock Stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock holders Dividend A distribution of earnings to the stockholders of a corporation Proxy A legal form listing issues to be decided at a stockholders meeting and enabling stockholders to transfer their voting rights to some other individual or individuals Copyright Cengage Learning. All rights reserved. 4 21

22 Forming a Corporation (cont d) Organizational meeting The last step in forming a corporation The incorporators and original stockholders meet to elect their first board of directors Board members are directly responsible to stockholders for how they operate the firm Copyright Cengage Learning. All rights reserved. 4 22

23 Board of directors Corporate Structure The top governing body of a corporation, the members of which are elected by the stockholders Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm s overall operation Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents t Inside directors: top managers from within the corporation Copyright Cengage Learning. All rights reserved. 4 23

24 Corporate Structure (cont d) Corporate officers The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board Implement the chosen strategy and direct the work of the corporation, periodically reporting results to the board and stockholders Copyright Cengage Learning. All rights reserved. 4 24

26 Advantages and Disadvantages of Corporations ADVANTAGES Limited liability Each owner s financial liability is limited it to the amount of money that he or she has paid for the corporation s stock Ease of raising capital Ease of transfer of ownership Perpetual life Specialized management DISADVANTAGES Difficulty and expense of formation Government regulation and increased paperwork Conflict within the corporation Double taxation Lack of secrecy Copyright Cengage Learning. All rights reserved. 4 26

28 Special Types of Business Ownership S-corporations A corporation that is taxed as though it were a partnership (income is taxed only as the personal income of stockholders) Advantages Avoids double taxation of a corporation Retains the corporation s legal benefit of limited liability S-corporation criteria No more than 100 stockholders allowed Stockholders must be individuals, estates, or exempt organizations There can be only one class of outstanding stock The firm must be a domestic corporation There can be no nonresident-alien stockholders All stockholders must agree to the decision to form an S- corporation Copyright Cengage Learning. All rights reserved. 4 28

29 Special Types of Business Ownership (cont d) Limited-liability company (LLC) A form of business ownership that provides limited-liability protection and is taxed like a partnership Advantages Avoids double taxation of a corporation Retains the corporation s legal benefit of limited liability Provides more management flexibility Difference between LLC and S-corporation LLCs not restricted to 100 stockholders LLCs have fewer restrictions on who can be a stockholder Copyright Cengage Learning. All rights reserved. 4 29

31 Special Types of Business Ownership (cont d) Government-owned corporations A corporation owned and operated by a local, state, or federal government Purpose To ensure that a public service is available Examples Tennessee Valley Authority (TVA), the National Aeronautics and Space Administration (NASA), and the Federal Deposit Insurance Corporation (FDIC) Copyright Cengage Learning. All rights reserved. 4 31

32 Special Types of Business Ownership (cont d) Not-for-profit corporations Corporations organized to provide social, educational, religious, or other services, rather than to earn a profit Charities, museums, private schools, and colleges are organized as not-for-profits primarily to ensure limited liability Copyright Cengage Learning. All rights reserved. 4 32

33 Cooperatives, Joint Ventures, Cooperatives Syndicates Associations of individuals or firms whose purpose is to perform some business function for its members Members benefit from the efficiencies of the cooperatives activities, such as reducing unit costs by making bulk purchases and coordinating services such as transportation, processing, and marketing products Copyright Cengage Learning. All rights reserved. 4 33

34 Cooperatives, Joint Ventures, Syndicates (cont d) Joint ventures Agreements between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time Example: Wal-Mart and India s Bharti Enterprises Syndicates Temporary associations i of individuals id or firms organized to perform a specific task that requires a large amount of capital Most commonly used to underwrite large insurance policies, loans, and investments Copyright Cengage Learning. All rights reserved. 4 34

35 Using the Internet The Small Business Administration website explores a number of business topics that are beneficial to new businesses as well as those currently in operation. Answers to typical questions such as which legal form is best and how to get financing are provided as well as the SBA answer desk where you can submit questions about specific concerns. Copyright Cengage Learning. All rights reserved. 4 35

36 Corporate Growth Growth from within Introducing new products Entering new markets Growth through mergers and acquisitions Merger: the purchase of one corporation by another; essentially the same as an acquisition Hostile takeover: a situation in which the management and board of directors of the firm targeted t for acquisition disapprove of the merger Tender offer: an offer to purchase the stock of a firm targeted t for acquisition iti at a price just high h enough to tempt stockholders to sell their shares Proxy fight: a technique used to gather enough stockholder votes to control the targeted t company Copyright Cengage Learning. All rights reserved. 4 36

38 Corporate Growth (cont d) Current merger trends Takeover advocates say Companies that are taken over are made more profitable and productive Proceeds from the sale of non-core subsidiaries help pay off debt or enhance the company Takeover opponents say Takeover threats force managers to spend time on defense rather than vital business activities The only people who benefit from takeovers are investment bankers, brokerage firms, and takeover artists Copyright Cengage Learning. All rights reserved. 4 38

39 Corporate Growth (cont d) Current merger trends Mergers during the first part of the 21st century will be the result of cash-rich companies looking to enhance their position in the marketplace There will be more mergers involving i companies or investors from other countries Future mergers and acquisitions will be driven by solid business logic and the desire to compete internationally There will be more leveraged buyouts A purchase arrangement that allows a firm s managers and employees or a group of investors to purchase the company Copyright Cengage Learning. All rights reserved. 4 39

40 Biggest Mergers Target Acquirer Value ($ billions) Date Mannesmann Vodafone Airtouch $ /2000 Time Warner America Online $ /2001 Warner- Lambert Pfizer $ /2000 Mobil Exxon $ /1999 SmithKline Glaxo Wellcome $ /2000 Ameritech SBC Communications $ /1999 GTE Bell Atlantic $74.9 6/2000 Aventis SA Sanofi-Synthelabo $71.3 6/2004 Amoco British Petroleum $ /1998 Source: Updated 7:24 PM.PT, Sun, February 15, Copyright Cengage Learning. All rights reserved. 4 40

41 Reasons for Merger/Acquisition Scale gain revenue, channels, etc. Geographic reach access new markets Customers new lists Products new products for existing customers Segments new vertical markets Channels new ways of delivering same products and services Employees new talent quickly Technology adding key capabilities Source: Preparing for the Merger/Acquisition Decision How to Position Your Company in a Consolidating Collaboration & Conferencing Marketplace, Wainhouse Research, 2004, Copyright Cengage Learning. All rights reserved. 4 41

42 Debate Issue: Should the Government Restrict Corporate Merger Activity? ty YES Takeovers and mergers do nothing to increase the productivity of the firm. Existing managers must spend time and effort to fend off hostile mergers time that t could be invested in product development. The only people that benefit from corporate takeovers and mergers are the corporate raiders. NO Firms that are taken over are more productive because unneeded assets are sold. A takeover shakes up existing management and makes managers more productive. Less productive managers may be fired. Corporate raiders have a basic right to take over a firm if they can acquire enough stock. Copyright Cengage Learning. All rights reserved. 4 42

43 Chapter Quiz 1. In the United States, the form of business ownership that generates the largest amount of sales revenues is the a) sole proprietorship. b) partnership. c) corporation. d) limited liability company. e) S-corporation. 2. Which of the following is not an advantage of a sole proprietorship? a) Flexibility b) No special taxes c) Pride of ownership d) Retention of all profits e) Unlimited liability Copyright Cengage Learning. All rights reserved. 4 43

44 Chapter Quiz (cont d) 3. A business co-owned by one or more general partners who manage the business and limited it partners who invest money into it is called a a) not-for-profit partnership. b) limited partnership. c) general partnership. d) limited liability company. e) S-partnership. Copyright Cengage Learning. All rights reserved. 4 44

45 Chapter Quiz (cont d) 4. A corporation that received its corporate charter in California and doing business in Oregon is called a(n) corporation in Oregon. a) alien b) domestic c) visiting d) international e) foreign 5. A is a merger between firms that make and sell similar products or services in similar industries. a) horizontal merger b) vertical merger c) conglomerate merger d) hostile takeover e) tender offer Copyright Cengage Learning. All rights reserved. 4 45

46 Answers to Chapter Quiz 1. In the United States, the form of business ownership that generates the largest amount of sales revenues is the a) sole proprietorship. b) partnership. c) corporation. (Correct) d) limited liability company. e) S-corporation. 2. Which of the following is not an advantage of a sole proprietorship? a) Flexibility b) No special taxes c) Pride of ownership d) Retention of all profits e) Unlimited liability (Correct) Copyright Cengage Learning. All rights reserved. 4 46

47 Answers to Chapter Quiz (cont d) 3. A business co-owned by one or more general partners who manage the business and limited partners who invest money into it is called a a) not-for-profit partnership. b) limited partnership. (Correct) c) general partnership. d) Limited liability company. e) S-partnership. Copyright Cengage Learning. All rights reserved. 4 47

48 Answers to Chapter Quiz (cont d) 4. A corporation that received its corporate charter in California and doing business in Oregon is called a(n) corporation in Oregon. a) alien b) domestic c) visiting d) international e) foreign (Correct) 5. A is a merger between firms that make and sell similar products or services in similar industries. a) horizontal merger (Correct) b) vertical merger c) conglomerate merger d) hostile takeover e) tender offer Copyright Cengage Learning. All rights reserved. 4 48

49 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.1 Relative Percentages of Sole Proprietorships, Partnerships, and Corporations in the United States 43 Sole Proprietorships 20.6 million 71.8% Partnerships 2.5 million 8.7% 19.5% Corporations 5.6 million Relative Percentages of Sole Proprietorships, Partnerships, and Corporations in the United States Source: U.S. Bureau of the Census, Statistical Abstract of the United States, Washington, D.C., 2008, p. 487 ( Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 43 3/6/09 6:44:02 PM

50 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.2 Total Sales Receipts of American Businesses 44 Total Sales Receipts of American Businesses Sole Proprietorships $1.1 trillion 4.2% Partnerships $3.1 trillion 12% Corporations $21.7 trillion 83.8% Source: U.S. Bureau of the Census, Statistical Abstract of the United States, Washington, D.C. 2008, p. 487 ( Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 44 3/6/09 6:44:02 PM

51 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.4 Hierarchy of Corporate Structure 45 Hierarchy of Corporate Structure Stockholders (owners) Elect Board of directors Appoints Officers Hire Employees 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 45 3/6/09 6:44:03 PM

52 Pride/Hughes/Kapoor, BUSINESS, 10th edition Table 4.3 Some Advantages and Disadvantages of a Sole Proprietorship, Partnership, and Corporation 46 Some Advantages and Disadvantages of a Sole Proprietorship, Partnership, and Corporation Sole Proprietorship General Partnership Regular (C) Corporation Protecting against liability for debts Difficult Difficult Easy Raising money Difficult Difficult Easy Ownership transfer Difficult Difficult Easy Preserving continuity Difficult Difficult Easy Government regulations Few Few Many Formation Easy Easy Difficult Income taxation Once Once Twice 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 46 3/6/09 6:44:03 PM

53 Pride/Hughes/Kapoor, BUSINESS, 10th edition Table 4.4 Some Advantages and Disadvantages of a Regular Corporation, S-Corporation, and Limited-Liability Company 47 Some Advantages and Disadvantages of a Regular Corporation, S-Corporation, and Limited-Liability Company Regular (C) Corporation S-Corporation Limited-Liability Company Double taxation Yes No No Limited liability and personalasset protection Yes Yes Yes Management and ownership flexibility No No Yes Restrictions on the number of owners/stockholders No Yes No Internal Revenue Service tax regulations Many Many Fewer 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 47 3/6/09 6:44:03 PM

54 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.5 Three Types of Growth by Merger 48 Three Types of Growth by Merger HORIZONTAL MERGER Financial Services and Banking (Bank of America) + Financial Services and Banking (Merrill Lynch) VERTICAL MERGER Computers and Technology (IBM) + Web Conferencing (WebDialogs) CONGLOMERATE MERGER Computer Hardware and Software (Hewlett-Packard) + Information Services (EDS) 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 48 3/6/09 6:44:03 PM

55 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.A Chapter Outline 49 Chapter 4 Outline Choosing a Form of Business Ownership Sole Proprietorships Advantages of Sole Proprietorships Disadvantages of Sole Proprietorships Beyond the Sole Proprietorship Partnerships Types of Partners The Partnership Agreement Advantages of Partnerships Disadvantages of Partnerships Beyond the Partnership Corporations Corporate Ownership Forming a Corporation Corporate Structure Advantages of Corporations Disadvantages of Corporations Special Types of Business Ownership S-Corporations Limited-Liability Companies Government-Owned Corporations Not-for-Profit Corporations Cooperatives, Joint Ventures, and Syndicates Cooperatives Joint Ventures Syndicates Corporate Growth Growth from Within Growth Through Mergers and Acquisitions Current Merger Trends 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 49 3/6/09 6:44:04 PM

56 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.B Class Exercise 50 Class Exercise You want to own and manage your own business. It s a good idea provided you know what it takes and have what it takes. To help you evaluate your chances of success, answer these questions. 1. Do you have any experience in a business like the one you want to start? 2. Have you worked for someone else as a supervisor or manager? 3. Have you saved any money? How much? 4. Do you know how much money you will need to get your business started? 5. Do you know how much credit you can get from your suppliers and bankers? 6. Do you know the good and bad points about going it alone, having a partner, and incorporating your business? 7. What do you know about your potential customer? 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 50 3/6/09 6:44:04 PM

57 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.C Debate Issue Should the government restrict corporate merger activity? YES Takeovers and mergers do nothing to increase the productivity of the firm. Existing managers must spend time and effort to fend off hostile mergers time that could be invested in product development. The only people that benefit from corporate takeovers and mergers are the corporate raiders. Debate Issue NO Firms that are taken over are more productive because unneeded assets are sold Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 51 A takeover shakes up existing management and makes managers more productive. Less productive managers may be fired. Corporate raiders have a basic right to take over a firm if they can acquire enough stock. 3768X_04_ch04_p indd 51 3/6/09 6:44:04 PM

58 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.D Chapter Quiz Chapter Quiz In the United States, the form of business ownership that generates the largest amount of sales revenues is the a. sole proprietorship. b. partnership. c. corporation. d. limited liability company. e. S-corporation. 2. Which of the following is not an advantage of a sole proprietorship? a. Flexibility b. No special taxes c. Pride of ownership d. Retention of all profits e. Unlimited liability 3. A business co-owned by one or more general partners who manage the business and limited partners who invest money into it is called a a. not-for-profit partnership. b. limited partnership. c. general partnership. d. limited liability company. e. S-partnership. 4. A corporation that received its corporate charter in California and doing business in Oregon is called a(n) corporation in Oregon. a. alien b. domestic c. visiting d. international e. foreign 5. A merger is a merger between firms that make and sell similar products or services in similar industries. a. horizontal b. vertical c. conglomerate d. hostile merger e. tender merger 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 52 3/6/09 6:44:04 PM

59 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.E The Advantages and Disadvantages of Sole Proprietorships Sole Proprietorships 53 ADVANTAGES Ease of start up Pride of ownership Retention of all profits Flexibility No special taxes DISADVANTAGES Unlimited liability Lack of continuity Lack of money Limited management skills Difficulty of hiring employees 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 53 3/6/09 6:44:04 PM

60 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.F Types of Partners 54 The Difference Between General and Limited Partners GENERAL PARTNER A person who assumes full or shared responsibility for operating a business LIMITED PARTNER A person who contributes capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the business 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 54 3/6/09 6:44:04 PM

61 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.G The Advantages and Disadvantages of Partnerships Partnerships 55 ADVANTAGES Ease of start up Availability of capital and credit Personal interest Combined business skills and knowledge Retention of profits No special taxes DISADVANTAGES Unlimited liability Management disagreements Lack of continuity Frozen investment 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 55 3/6/09 6:44:04 PM

62 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 4.H The Advantages and Disadvantages of Corporations Corporations 56 ADVANTAGES Limited liability Ease of raising capital Ease of transfer of ownership Perpetual life Specialized management DISADVANTAGES Difficulty and expense of formation Government regulation and increased paperwork Conflict within the corporation Double taxation Lack of secrecy 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_04_ch04_p indd 56 3/6/09 6:44:04 PM

Choosing a Form of Business Ownership

Chapter 4 Choosing a Form of Business Ownership 1 Describe the advantages and disadvantages of sole proprietorships. 2 Explain the different types of partners and the importance of partnership agreements.