Business Ownership Models Quiz

Business Ownership Models

• Sole Proprietorship: Owned by one person, complete control

  • Examples: Farms, local retail, small service businesses.
  • Advantages: Simple structure, single layer of taxation (profits are reported/taxed as personal income), flexibility and control, fewer limitations on personal income, and personal satisfaction.
  • Disadvantages: Unlimited liability (personal assets at risk), high demands on the owner (long hours, all decision-making), limited managerial perspective, resource limitations, and finite (limited) lifespan.

• Partnership: Owned by two or more people

  • Examples: Many partnerships are small, some are immense (e.g., PwC).
  • Advantages: Simplicity, single layer of taxation, more resources, cost sharing, broader skill base, longevity (new partners can replace old ones).
  • Disadvantages: Unlimited liability, potential for conflict, expansion, succession, and termination issues.
  • Partnership Agreement: Addresses partnership type, investment percentages, profit-sharing percentages, management responsibilities, expectations of each owner, decision-making, succession and exit strategies, criteria for admitting new partners, and dispute-resolution.
  • Limited Liability: The maximum amount each owner is liable for is equal to the amount they invested.
    • General partnership: All partners have unlimited liability.
    • Limited partnership: Only general partners have unlimited liability.

• Corporation: A separate legal entity, distinct from its owners, can own property and conduct business.

  • Examples: Walmart, Toyota, Royal Dutch Shell, Apple, Sinopec Group.
  • Types: Private (stock owned by a few individuals or companies, not available to the public), Public (stock is sold to anyone who wants to purchase it, publicly traded).
  • Advantages: Ability to raise capital, liquidity, longevity, and limited liability.
  • Disadvantages: Cost and complexity of formation, reporting requirements, managerial demands, possible loss of control, double taxation, short-term orientation of the stock market.
  • Special Types:
    • S (Subchapter) Corporation: Combines capital-raising options and limited liability of a corporation with the taxation advantages of a partnership (max of 100 investors).
    • Limited Liability Company (LLC): Combines limited liability with the tax benefits of a partnership, it has no limitations on the number of investors.
    • Benefit Corporation: Profits are sought while focusing on a stated social or environmental goal.

Corporate Governance

• Corporate Governance: Describes the policies, procedures, relationships, and systems to oversee the successful and legal operation of an enterprise, and the responsibilities and performance of the board of directors.
  • Groups Responsible: Shareholders, Board of Directors, Corporate Officers.
  • Shareholders: Investors (who buy shares of stock).
    • Proxy: Document authorizing someone else to vote on their behalf.
    • Shareholder Activism: Activities by shareholders to influence executive decisions (e.g., strategic planning, social responsibility).
  • Board of Directors: Professionals elected by shareholders as representatives overseeing the company's direction and top executive selection. Board members are usually major shareholders, or their representatives, and executives from other corporations.
    • Issues: Board composition, education and board member liability (legal and financial for company failures). Recruiting challenges, difficulty finding good board members, and existence of independent board chairs.
  • Corporate Officers: Top executives running the corporation.
    • Examples: CEO (chief executive officer), CFO (chief financial officer), CIO (chief information officer), CTO (chief technology officer), COO (chief operating officer).

Changes in Ownership Structure

• Mergers and Acquisitions (M&A): Companies combining permanently (M&A) by purchasing (acquisition) or partnering (merger) with a firm to gain resources and capabilities.,
  • Merger: Two companies combine into a single entity.
  • Acquisition: One company buys a controlling interest in another company.
  • Types of Mergers:
    • Vertical: A company buys a complementary one at a different stage or level in its industry.
    • Horizontal: Two similar companies at the same level merge.
    • Conglomerate: A parent company acquires unrelated companies.
    • Hostile Takeover: Acquisition against management's wishes.
    • Leveraged Buyout (LBO): Acquisition financed primarily using borrowed funds.
  • Advantages: Increase buying power, revenue, and market share; access to expertise, systems, and teams.
  • Disadvantages: Executive agreement on financing, post-merger leadership, integration of product lines/branding/advertising, incompatible info systems, potential layoffs, harmonizing organizational cultures.
• Divestiture: A company selling off parts of itself as separate companies or "spin-offs", increased shareholder value,
• Strategic Alliances and Joint Ventures: Long-term partnerships, but with less risk than M&A
  • **Strategic Alliance:**Long-term partnership in developing, producing, or selling products for market presence, technology access, and sharing of best practices.
  • Joint Venture: A separate legal entity created by multiple companies to pursue shared objectives. Creates a single management structure.

Big Data and Analytics

• Big Data: Massive data sets analyzed for trends and insights. Data sets are large, require specialized computer systems, and come with velocity (high input speed). Varieties in data formats.
• Analytics: Computing tools used to analyze big data; major types include data mining, text mining, and predictive analytics. Analytics capabilities include: data mining, text mining, and predictive analytics.

Test your knowledge of different business ownership models, including sole proprietorships and partnerships. This quiz covers advantages and disadvantages, examples, and key characteristics of each type. Perfect for students and anyone interested in business fundamentals.