Chapter 4

Choosing a Form of Business Ownership

MGT1101 Introduction to Business
 Learning Objectives
For Chapter 4

1. Describe the advantages and disadvantages of sole

proprietorships.
2. Explain the different types of partners and the importance of
partnership 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.
Chapter 4 MGT1101 Introduction to Business
 Refer to page 100

3 Forms of Business Ownership

classified by legal perspective

1 Sole Proprietorship

2 Partnership

3 Corporation

Chapter 4 MGT1101 Introduction to Business

 Refer to page 102
3 Forms of Business Ownership
classified by legal perspective

• A business that is owned by one

1 Sole Proprietorship person
• The simplest form
• Many large businesses began as a
small
2 Partnership

3 Corporation

Chapter 4 MGT1101 Introduction to Business

 Refer to page 102-105
3 Forms of Business Ownership
classified by legal perspective

• A business that is owned by one

1 Sole Proprietorship person
• The simplest form
• Many large businesses began as a
small
2 Partnership

• Advantages
3 Corporation 1. Ease of start-up and closure
2. Pride of ownership
3. Retention of all profits
4. Flexibility of being your own boss

Chapter 4 MGT1101 Introduction to Business

 Refer to page 102-105
3 Forms of Business Ownership
classified by legal perspective

• A business that is owned by one

1 Sole Proprietorship person
• The simplest form
• Many large businesses began as a
small
2 Partnership

• Disadvantages
1. Unlimited liability
3 Corporation
A legal concept that holds a business
owner personally responsible for all the
debts of the business
2. Lack of continuity
3. Lack of money
4. Limited management skills
Chapter 4 MGT1101 Introduction to Business
 Refer to page 105-106
3 Forms of Business Ownership
classified by legal perspective

• A voluntary association of two or more

1 Sole Proprietorship persons.
• No legal limit on the maximum number
of partners; most have only two
• Partnerships are usually a pooling of
2 Partnership special talents

3 Corporation

Chapter 4 MGT1101 Introduction to Business

 Refer to page 105-106
3 Forms of Business Ownership
classified by legal perspective

• A voluntary association of two or more

1 Sole Proprietorship persons.
• No legal limit on the maximum number
of partners; most have only two
• Partnerships are usually a pooling of
2 Partnership special talents

Types of Partner
3 Corporation 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 responsibility or liability for
losses beyond the amount he or she invested in the
partnership

Chapter 4 MGT1101 Introduction to Business

 Refer to page 106-109
3 Forms of Business Ownership
classified by legal perspective

• A voluntary association of two or more

1 Sole Proprietorship persons.
• No legal limit on the maximum number
of partners; most have only two
• Partnerships are usually a pooling of
2 Partnership special talents

Advantages
3 Corporation 1. Ease of start-up
2. Availability of capital and credit
3. Combined business skills and knowledge
4. Retention of profits

Chapter 4 MGT1101 Introduction to Business

 Refer to page 106-109
3 Forms of Business Ownership
classified by legal perspective

• A voluntary association of two or more

1 Sole Proprietorship persons.
• No legal limit on the maximum number
of partners; most have only two
• Partnerships are usually a pooling of
2 Partnership special talents

Disadvantages
3 Corporation 1. Unlimited liability
2. Management disagreements
3. Lack of continuity
4. Frozen investment

Chapter 4 MGT1101 Introduction to Business

 Refer to page 109
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole Proprietorship ownership and control
• Ownership: Stockholders
• Control: Board of director

2 Partnership

3 Corporation

Chapter 4 MGT1101 Introduction to Business

 Refer to page 110-112
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole Proprietorship ownership and control
• Ownership: Stockholders
• Control: Board of director

2 Partnership

3 Corporation
Hierarchy of Corporate Structure

Chapter 4 MGT1101 Introduction to Business

 Refer to page 113-116
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole Proprietorship ownership and control
• Ownership: Stockholders
• Control: Board of director

2 Partnership
Advantages
1. Limited liability
Each owner’s financial liability is limited to
3 Corporation the amount of money that he or she has
paid for the corporation’s stock
2. Ease of raising capital
3. Ease of transfer of ownership
4. Perpetual life
5. Specialized management
Chapter 4 MGT1101 Introduction to Business
 Refer to page 113-116
3 Forms of Business Ownership
classified by legal perspective

The business entity that separates

1 Sole Proprietorship ownership and control
• Ownership: Stockholders
• Control: Board of director

2 Partnership
Disadvantages
1. Difficulty and expense of formation
3 Corporation 2. Government regulation and increased
paperwork
3. Conflict within the corporation
4. Double taxation
5. Lack of secrecy

Chapter 4 MGT1101 Introduction to Business

 Example
Proctor and Gamble
 Proctor and Gamble

1. About company: The Introduction

an American corporation headquartered
in Cincinnati, Ohio
manufactures a wide range of consumer
goods
widely recognized as the industry’s global
innovation leader.
P&G headquarter

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 2. Product Categories or Product Lines
Proctor
There are and
two product linesGamble
1. Beauty and Grooming
2. Household Care

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble

Product Categories: 1. Beauty and Grooming

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble

Product Categories: 1. Beauty and Grooming

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble

Product Categories: 2. Household Care

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble

Product Categories: 2. Household Care

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble
3. History
WAS FOUNDED IN 1837 BY TWO MEN WHO MET BY CHANCE

William Procter James Gamble

•from England •from Ireland
•Candle maker •a soap maker

• The two might never have met had they not married sisters Olivia and Elizabeth
Norris, whose father convinced his new sons-in-law to become business partners.
• After several years, the sons agreed and on October 31, 1837,

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

 Proctor and Gamble
4. Form of Business Ownership
• As a partnership in 1837
– They signed the partnership agreement that founded the Procter & Gamble
Company.
• Corporation:
– Jan. 02, 1970, P&G stocks are traded in New York Stock Exchange (NYSE)
– Separation of ownership and control

Discussion 2 (Chapter 4) MGT1101 Introduction to Business

THANK YOU!
THANK YOU!