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Chapter 2

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14 views

Chapter 2

Uploaded by

fahimtahmid2090
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Chapter Two:

Forms of Business
Ownership
What Type of Business Is
Appropriate for You?
Consider the following factors before
starting a business –

 Capital Requirements– The amount of funds


necessary to finance the operation

 Risk– The amount of personal property a


person is willing to lose by starting the business

 Control- The amount of authority the owner


exercises
What Type of Business Is
Right for You?
 Managerial Abilities– The skills needed to
plan, organize and control the business
 Time Requirements– The time needed to
operate the business and provide guidance to
the employees
 Tax Liability– What taxes a business must pay
to various government organizations on
earnings of the business
Each of these factors should be considered
along with your own personal
Values and philosophy
Sole Proprietorship

 A business owned and managed by


one Individual
Example – restaurant, roadside shop
 The capital (money) needed to start
and operate the business is normally
provided by the owner through
personal wealth or borrowed money
Sole Proprietorship

 The sole proprietor usually is an


active manager
 Controls the operation
 Supervises the employees and

 Makes decisions

 The managerial ability of the


owner usually accounts for the
success or failure of the business
Advantages of Proprietorship
 Ease of starting – it involves a minimum
number of problems
 Control – as boss make final decisions
 Sole participation in profits and losses
 Use of owner’s abilities, managerial expertise
for the success of the business
 Tax breaks – no income tax/ low tax
 Secrecy – no information to the public
 Ease of dissolving
Disadvantages of Proprietorship

 Unlimited liability
 Difficulty in raising capital
 Limitations in managerial ability
 Lack of stability
 Demands on time
 Difficulty in hiring and keeping high-
achievement employees
Partnerships
 A business owned by two or more people.
 A partnership can be based on written contract
or a voluntary and legal oral agreement
Types of partnerships –
(A) General Partnerships –
 A partnership in which at least one partner has
unlimited liability for the debt of the business;
A general partner has authority to act and
make binding decisions as an owner
 Partners generally share profits and losses
according to a plan specified by agreement
between them
Partnerships
B) Limited Partnerships
 A partnership with at least one general

partner, and one or more limited partners


who are liable for loss and up to the
amount of their investment

General Partners
 The general partners arrange and run the

business
 General partners have unlimited liability in

the partnerships
Partnerships
Limited Partners
 The limited partners are investors only
 They receive special tax advantages and
protection from liability
 Legally, may have no say in managing
the business
 They are liable for loss only up to the
amount of capital invested
Partnerships

C) Joint Venture
 Special type of partnership
characterized by cooperation between
two or more businesses to share
business decision making, investment
risks, and profits in a business venture
for a specific time period
Partnership Contract
A contractual agreement is called articles of
partnership. A written partnership agreement
includes the following main features –
 Name of the business partnership
 Type of business
 Locating of the business
 Expected life of the partnership
 Names of the partners and the amount of each one’s
investment
 Procedures for distributing profits and covering losses
 Amounts that partners will withdraw for services
 Procedure for withdrawal of funds
 Duties of each partners
 Procedures for dissolving the partnership
Advantages of Partnership
 More capital
 Combined managerial
skills
 Ease of starting
 Clear legal status –
sound legal advice
available about
partnership issues
 Tax advantages –
partnership as business
does not pay tax
Disadvantage of Partnership
 Unlimited liability
 Potential
disagreements
 Investment
withdrawal
difficulty
 Limited capital
availability
 Instability
Corporations
 A business that is a legal entity
separate from its owners
 Need millions of Taka to operate
industries such as automobile
manufacturing, pharmaceutical,
toiletries etc
 Attracts numerous investors
Different Types of Corporations
 Domestic Corporation – An enterprise
organized under the laws of one state or
country and doing business within that state or
country
 Foreign Corporation – A business
incorporated in one sate or country and doing
business in another state or country
 Nonprofit Corporations – An enterprise
(universities, mosques) that is not driven by a
profit-seeking motive
Forming a Corporation

 Legal status of a corporation stems from


a charter

 Charter – A State’s written agreement


giving a corporation the right to operate
as a business
Corporate Policy Makers
 A corporation’s policy is established by a board
of directors, which is elected by the
shareholders or owners
 The board must put together the best possible
team of managers to run the day-to-day
operations
 Directors are elected by the shareholders
(usually each share of common stock entitles
the shareholder to one vote)
 Proxy – a written statement signed by a
shareholder of a corporation, allowing someone
else to cast his or her number of vote
Advantages of Corporation

 Limited liability
 Skilled management team
 Transfer of ownership
 Greater capital base
 Stability
 Legal entity status
Disadvantages of Corporation

 Difficulty and expense of starting


 Lack of control
 Multiple taxation
 Government involvement
 Lack of secrecy
 Lack of personal interest
 Credit limitations
Mergers
Combining two or more business
enterprises into a single entity
 Horizontal Merger – A merger involving
competitive firms in the same market
 Vertical Merger – A merger in which a
firm joins with its supplier
 Conglomerate Merger – A merger
involving firms selling goods in unrelated
markets

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