Types of Business Ownership

Study Notes

Larger firms have greater sales revenue and profit, facilitating growth through two strategies: Growth from Within and Growth through Mergers and Acquisitions (M&A).
Growth from Within involves expanding present operations, introducing new products, entering new markets, etc.
Growth through Mergers and Acquisitions involves combining with other firms to increase size and capabilities.

A hostile takeover occurs when the management and board of directors of the target firm disapprove of the merger, but shareholders approve.
A tender offer is an offer to purchase the stock of the target firm at a price high enough to tempt stockholders to sell their shares.

A small business is an independently owned and operated business for profit that is not dominant in its field.
Small businesses provide technological innovation, employment opportunities, competition, and fill the needs of society and other businesses.

Small businesses participate in three broad industries: Distribution Industries, which involve the movement of goods from producers to consumers, including retailing, wholesaling, transportation, and communications.

The three most common forms of business ownership are Sole Proprietorship, Partnership, and Corporation.

A business owned and usually operated by one person, with the simplest form of business ownership and easiest to start with.
The business owner is personally responsible for all the debts of the business.
Advantages include ease of start-up and closure, pride of ownership, retention of all profits, no special taxes, and flexibility of being one's own boss.
Disadvantages include unlimited liability, banks' unwillingness to lend large sums of money, limited management skills, and difficulty in hiring employees.

A voluntary association of two or more persons to act as co-owners of a business for profit.
Partnerships can have no limit on the number of partners, but most have only two to three.
Types of partnerships include General Partners and Limited Partners.
Advantages include ease of start-up, availability of capital and credit, combined business skill and knowledge, retention of profits, and no special taxes.
Disadvantages include unlimited liability, management disagreements, lack of continuity, and limited management skills.