This document discusses different forms of business ownership including sole proprietorships, partnerships, and corporations. It outlines the key advantages and disadvantages of each structure. For example, sole proprietorships are easy to start but provide unlimited liability, while corporations allow for limited liability but involve more paperwork and potential double taxation. The document also covers franchising, noting the assistance franchisors provide but also the upfront costs and restrictions franchisees face. Overall, the document provides a high-level overview of various business ownership structures and considerations in selecting the appropriate form.

1. Forms of
Business Ownership
INTRODUCTION TO BUSINESS (BUS 20)
JON WROTEN
ADJUNCT PROFESSOR
SIERRA COLLEGE
(Copyright – All Rights Reserved)

2. WHAT IS THE RIGHT FORM OF OWNERSHIP ?
There really is not one right form of ownership.
The correct form depends of the type of company, the
goals of the owners, and the plans of what the
company may become.
Factors such as tax considerations, liability exposure,
capital requirements and structure and ownership
control all play a role is determining which form is
correct for a business.

3. World’s Largest Companies by Revenue
RANK COMPANY INDUSTRY
REVENUE
(USD billions)
CAPITALIZATION
(USD billions)
EMPLOYEES HEADQUARTERS
1 Wal-mart Retail $476 $257 2,200,000 Arkansas, USA
2 Royal Dutch Shell Oil and gas $451 $243 90,000 London, England
3 Exxon Mobil Corporation Oil and gas $420 $438 76,900 Texas, USA
4
China National Petroleum
Corporation
Oil and gas $425 1,668,072 Beijing, China
5 Sinopec Group Oil and gas $411 $81 401,000 Beijing, China
6 BP Oil and gas $379 $89 83,900 London, England
7 Saudi Aramco Oil and gas $311 54,041 Dhahran, Saudi Arabia
8 Vitol Commodities $303 2,800 Geneva, Switzerland
9
State Grid Corporation of
China
Electric utility $290 1,564,000 Beijing, China
10 Total Oil and gas $240 $120 111,000 Courbevoie, France

4. World’s Largest Companies by Revenue
RANKING COMPANY INDUSTRY
REVENUE
(USD billions)
CAPITALIZATION
(USD billions)
EMPLOYEES HEADQUARTERS
11 Volkswagen Group Automotive $254 $77 502,000 Wolfsburg, Germany
12 Samsung Conglomerate $327 427,000 Seoul, Korea
13 Toyota Automotive $222 $149 326,000 Toyota, Japan
18 Apple Electronics $170 $510 80,300 California, USA
22 Berkshire Hathaway Conglomerate $162 $201 217,000 Nebraska, USA
23 General Motors Automotive $156 $40 284,000 Michigan, USA
24 Daimler Automotive $150 $64 275,087 Stuttgart, Germany
25 LG Corp Conglomerate $148 226,400 Seoul, Korea
26 General Electric Conglomerate $145 $212 287,000 Connecticut, USA
29 Allianz Financial services $140 $54 142,000 Munich, Germany
32 Cargill Food processing $136 158,000 Minnesota, USA
33 Ford Motor Company Automotive $134 $47 164,000 Michigan, USA

5. RANK EMPLOYER COUNTRY EMPLOYEES
1 Wal-Mart United States 2,200,000
2 China National Petroleum Corporation China 1,668,072
3 State Grid Corporation of China China 1,583,000
4 Sinopec China 1,021,979
5 Hon Hai Precision Industry Taiwan 961,000
6 China Post Group China 889,307
7 U.S. Postal Service United States 601,601
8 Volkswagen Germany 501,956
9 China Telecommunications China 491,447
10 Aviation Industry Corp. of China China 480,147
WORLD'S LARGEST PRIVATE EMPLOYERS, 2011

6. BASIC FORMS OF OWNERSHIP
 Sole Proprietorship
 Partnership
 Corporation
Number Sales
72% 5%
4% 5%
24% 90%
Source: IRS, Tax year 2008

8. SOLE PROPRIETORSHIP
 Ease of start/end
 Be your own boss
 Pride of ownership
 Retain profit
 No special taxes
 Unlimited liability
 Limited financial
resources
 Difficulty in mgmt.
 Time commitment
 Few fringe
benefits
 Limited growth
 Limited life span
Advantages Disadvantages

9. PARTNERSHIPS

10. PARTNERSHIP
More financial
resources
Shared mgmt.
Longer survival
Advantages
Unlimited liability
Division of profits
Disagreements
among partners
Difficult to
terminate
Disadvantages

11. GENERAL
GP
GP
GP
GP
LIMITED
GP
TYPES OF PARTNERSHIPS
Passive
Investor
Passive
Investor
Passive
Investor

12. CORPORATIONS

13. TYPES OF CORPORATIONS
Regular ‘C’
Subchapter ‘S’
Limited Liability
Corporation

14. CORPORATION
More money for
investment
Limited liability
Separation of
ownership/mgmt.
Ease of ownership
change
Perpetual life
Size
Initial cost
Paperwork
Two tax returns
Termination difficult
Double taxation
Advantages Disadvantages

15. S CORPORATIONS
No more than 75
shareholders
Shareholders
Individuals
Estates
U.S. citizens or
residents
1 class of stock
<25% of income
can be passive
Tax rate = +5%
Slower-growing
companies
Benefits change
with new tax rules

16. HOW OWNERS AFFECT MANAGEMENT

17. MAKE-UP OF
CORPORATE BOARDS
Retired officer of another firm 89%
CEO at another company 87%
Major company shareholder 73%
Ex-government official 53%
Academicians 50%
Corporate boards average 11 Directors.
Most Directors by percentage are:

19. RANK FRANCHISE STARTUP COSTS
1 Subway Subs, salads $85.69K - 262.85K
2 Jan-Pro Franchising Int'l. Inc. Commercial cleaning $3.15K - 50.9K
3 7-Eleven Inc. Convenience Stores $30.79K - 1.63M
4 Vanguard Cleaning Systems Commercial cleaning $9.85K - 35.83K
5 Liberty Tax Service Tax preparation $56.79K - 69.9K
6 Chester's Chicken $4.63K - 321.32K
7 Jazzercise Inc. Dance-fitness classes, apparel and accessories $4.28K - 76.5K
8 Jimmy John's Gourmet Sandwiches Gourmet sandwiches $300.5K - 489.5K
9 Dunkin' Donuts Coffee, doughnuts, baked goods $294K - 1.51M
10 Anago Cleaning Systems Commercial cleaning $11.18K - 66.84K
TOP GROWTH FRANCHISES, 2013

20. RANK FRANCHISE STARTUP COSTS
11 Cellairis Franchise Inc. Cell-phone and accessories $33.4K - 439.01K
12 Cruise Planners-American Express Travel Cruise & travel agency $2.09K - 21.98K
13 Great Clips Hair salon $109.15K - 208.3K
14 H&R Block Tax preparation, electronic filing $31.5K - 148.69K
15 Anytime Fitness Fitness center $56.29K - 353.89K
16 Sport Clips Men's sports-theme hair salon $158.3K - 306.5K
17 Menchie's Self-serve frozen yogurt $218.32K - 385.16K
18 Mac Tools Automotive tools and equipment $86.19K - 240.3K
19 Papa John's Int'l. Inc. Pizza $129.91K - 644.21K
TOP GROWTH FRANCHISES, 2013

23. SURVIVAL AFTER STARTUP
FRANCHISE VS. INDEPENDENT
0
10
20
30
40
50
60
70
80
90
100
1st Year 5th Year 10th Year
Independent
Franchise

24. FRANCHISES
 Management &
marketing ass’t
 Personal ownership
 Recognized name
 Financial advice & ass’t
 Lower failure rate
 High start-up costs
 Shared Profit
 Management regulation
 Coattail effects
 Restrictions on selling
 Fraudulent franchisors
Advantages Disadvantages

25. FRANCHISE SYSTEM
Franchiser
Franchisee
Franchise Agreement

26. FRANCHISE CONTRACT
Franchisor, Inc.
Franchisee
Branded
Product/Service
Performance
Monitoring
$$$$$

27. FRANCHISOR
 Assigns Territory
 Provides Financial
Aid/Advice
 Offers
Merchandise/
Supplies at
Competitive Price
 Provides
Training/Support
 Business
Expansion Using
O.P.M.

28. FRANCHISEE
Pays Up-Front Costs
Makes Monthly Payment to Franchisor
Runs Business by Franchisor’s
Rules/Procedures
Buys Materials from Franchisor/
Approved Supplier

29. 1) Research officers & their
business experience
2) Talk to current Franchisees
3) Get summary of any
bankruptcy & litigation
4) Estimate all costs to set up
franchise
5) Review franchise contract &
three most recent financial
statements
How to Avoid a
Franchise Lemon

30. Benefits of a
Home-Based Business
 Flexible work hours
 Quality lifestyle
 Doing the work of your
choice
 Opportunity to expand
using technology
 Self-motivation
.