Slide 1Chapter OutlineLearning ObjectivesLearning Objectives1.1 The Four Types of Firms1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)1.1 The Four Types of Firms (continued)Figure 1.1 Types of U.S. Firms1.1 The Four Types of Firms (continued)Textbook Example 1.1Textbook Example 1.1 (continued)Textbook Example 1.2Textbook Example 1.2 (continued)1.2 Ownership versus Control of CorporationsFigure 1.2 Organizational Chart of a Typical Corporation1.2 Ownership versus Control of Corporations (continued)1.2 Ownership versus Control of Corporations (continued)1.2 Ownership versus Control of Corporations (continued)1.2 Ownership versus Control of Corporations (continued)1.2 Ownership versus Control of Corporations (continued)1.2 Ownership versus Control of Corporations (continued)1.3 The Stock Market1.3 The Stock Market (continued)1.3 The Stock Market (continued)1.3 The Stock Market (continued)Slide 31Chapter QuizChapter 1The CorporationCopyright ©2014 Pearson Education, Inc. All rights reserved.Chapter Outline1.1 The Four Types of Firms1.2 Ownership Versus Control of Corporations 1.3 The Stock MarketCopyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives1. List and define the four major types of firms in the U.S.; describe major characteristics of each type, including the means for distributing income to owners.2. Distinguish between limited and unlimited liability, and list firm types that are subject to each type of liability.3. Describe the taxation consequences for C and S corporate forms.Copyright ©2014 Pearson Education, Inc. All rights reserved.Learning Objectives4. Discuss the division of corporate ownership into shares of stock; evaluate the implications of that division for corporate decision making.5. Explain how corporate bankruptcy can be viewed as a change in firm ownership.6. Compare and contrast the characteristics of shares that are publicly traded and the characteristics of those that are not.Copyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms•Sole Proprietorship•Partnership•Limited Liability Company•CorporationEach One is a Different Type of OwnershipCopyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Sole Proprietorship–Business is owned and run by one person–Typically has few, if any, employees–Advantages•Easy to create–Disadvantages•Unlimited personal liability•Limited lifeCopyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Partnership–Similar to a sole proprietorship, but with more than one owner–All partners are personally liable for all of the firm’s debts. A lender can require any partner to repay all of the firm’s outstanding debts.–The partnership ends with the death or withdrawal of any single partner.Copyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Partnership–Limited Partnership has two types of owners.•General Partners–Have the same rights and liability as partners in a “regular” partnership –Typically run the firm on a day-to-day basis•Limited Partners–Have limited liability and cannot lose more than their initial investment–Have no management authority and cannot legally be involved in the managerial decision making for the businessCopyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Limited Liability Company (LLC)–All owners have limited liability but they can also run the business.–Relatively new business form in the U.S.Copyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Corporation–A legal entity separate from its owners•Has many of the legal powers individuals have such as the ability to enter into contracts, own assets, and borrow money•The corporation is solely responsible for its own obligations. Its owners are not liable for any obligation the corporation enters into.Copyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Corporation–Formation•Corporations must be legally formed. The corporation files a charter with the state it wishes to incorporate in. The state then “charters” the corporation, formally giving its consent to the incorporation.•Due to its attractive legal environment for corporations, Delaware is a popular choice for incorporation.Copyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Corporation–Ownership•Represented by shares of stock•Owner of stock is called–Shareholder–Stockhoder–Equity Holder•Sum of all ownership value is called equity.•There is no limit to the number of shareholders, and thus the amount of funds a company can raise by selling stock.•Owner is entitled to dividend payments.Copyright ©2014 Pearson Education, Inc. All rights reserved.Figure 1.1 Types of U.S. FirmsSource: www.bizstats.comCopyright ©2014 Pearson Education, Inc. All rights reserved.1.1 The Four Types of Firms (continued)•Corporation–Tax Implications•Double Taxation–“S” Corporations•Firm’s profits are not subject to corporate income tax, but instead are allocated directly to the shareholders.Copyright ©2014 Pearson Education, Inc. All rights reserved.Textbook Example 1.1Copyright ©2014 Pearson Education, Inc. All rights reserved.Textbook Example 1.1 (continued)Copyright ©2014 Pearson Education, Inc. All rights reserved.Textbook Example 1.2Copyright ©2014 Pearson Education, Inc. All rights reserved.Textbook Example 1.2 (continued)Copyright ©2014 Pearson Education, Inc. All rights reserved.1.2 Ownership versus Control of Corporations•Corporate Management Team–In a corporation, ownership and direct control are typically separate.–Board of Directors•Elected by shareholders•Have ultimate decision-making authority–Chief Executive Officer (CEO)•Board typically delegates day-to-day decision making to CEO.Copyright ©2014 Pearson Education, Inc. All rights reserved.Figure 1.2 Organizational Chart of a Typical CorporationCopyright ©2014 Pearson Education, Inc. All rights reserved.1.2 Ownership versus Control of Corporations