Forms of Business Organization

1. Forms of Business Organization Chapter 3

3. Sole Proprietorships • Business owned (and usually operated) by one person • Simplest form of business ownership • Most popular form of business organization in US and Morocco • Most common in: • Retailing • Service • Agriculture

4. Sole Proprietorship -- Advantages • Ease of Startup • Little legal documentation • No co-owners to consult • Least expensive to start • Pride of Ownership • Retention of profits • Flexibility • No Business Income Tax in US

5. Sole Proprietorship -- Disadvantages • Unlimited Liability • Limited Life – Business ends when owner leaves the business • Limited Access to Start-up Capital • Limited Access to Credit • Limited Management Expertise • Difficulty in Hiring Employees • Proprietor not considered an employee

6. Partnerships • Two or more owners • Least numerous form in US (8% of all businesses) in Progress in Morocco • Partnership Agreement • Specifies rights and obligations of partners • If written, called the Articles of Partnership (Articles of Co-partnership) or “Statuts”

7. Partnership -- Advantages • Greater Access to Capital • Greater Access to Credit • Retention of Profits • More Management Expertise • No Business Income Tax in US (in Morocco you pay IS=)

8. Partnership -- Disadvantages • Shared Profits • Unlimited Liability for “General Partners” • Each partner has “Agency” power • Limited Life • Business may end when one or more partners withdraw • Management Disagreements • Frozen Investment

9. Types of Partners • General Partner • Unlimited Liability • Assumes Management Role • Limited Partner • Liability limited to Investment • May not take active managerial role • Every partnership must have at least one general partner

10. Types of Partners • General Partnership • All partners are general partners • Limited Partnership • One or more limited partners • Master Limited Partnership • Owned & managed like a corporation • Taxed like a partnership • Shares may be sold

11. Corporations • Generally larger than other forms (Except for S-Corporation) • 20% of all U.S. Businesses • Account for 87% of all U.S. Business Income • Considered a separate legal entity • Owners called “Stockholders” or Shareholders” • Ownership evidenced by “Stock Certificate” • Governed by “Board of Directors”

12. Corporations -- Advantages • Limited Liability • Ease of Ownership Transfer • Unlimited Life • Greater Access to Capital • Specialized Management Expertise

13. Corporations -- Disadvantages • More difficult & costly to form • Requires a “Corporate Charter” • Subject to greater governmental scrutiny • Diluted earnings • Double taxation

14. Limited liability companies (SA) • A minimum of five shareholders who can be either legal entities or individuals. • The shareholders' liability is limited to the amount of share equity the shareholder hold. Upon incorporation of the limited liability company, a quarter of the equity capital must be paid in advance if paid in cash contributions. If it is paid in contributions in kind, it must be fully paid upon incorporation. • Both bearer and registered shares may be issued by the limited liability company. • The company has no corporate name but a trade name, and there are generally no restrictions on the sale and transfer of shares to third parties.

15. The private limited company (SARL) • Intermediate type between associations of persons and of capital, bearing resemblance to both partnerships and share companies. • No minimum equity capital (2011 measure). • May be formed by two or more members who are only liable to the amount of their share of the equity capital in the company. • Unlike a general partnership, members of SARL do not need to be registered merchants. The SARL must file a memorandum of association as part of its incorporation process. • The capital stock has to be fully described and paid up as the company is formed. • Stocks shall have the same face value and are not negotiable; they may be transferred only through contracts. "Parts Sociales" may be transferred to third parties outside the company only with the co-associates' consent.

16. Legal Business Forms in Morocco

17. Corporate Charter • Legal Permission to Operate as a Corporation • Issued by state • May not conduct business as a corporation without a charter

18. Contents of a Corporate Charter • Company Name & Address • Names & addresses of Incorporators • Purpose of the Corporation • Maximum amount of stock & Classes of Stock to be issued • Rights & Privileges of stockholders • Length of time the corporation is to exist

19. Stockholder Rights • Common Stock • Votes in corporate matters • One vote per share owned • Preferred Stock • No voting rights • Dividend claims are paid 1st • Dividend • Distribution of earnings to the stockholders of a corporation

20. Organizational Chart

21. Types of Corporations • Government-Owned Corporation • Public Corporation • Owned & operated by government • CDG, Post office, NASA-USA, Renault-France • Quasi-Government Corporation • Quasi-Public Corporation • Privately owned, government controlled monopoly • Public utilities , Redal, Lydec,… • Private Corporation • Owned by individuals or other companies

22. Types of Corporations • Not-For-Profit Corporation • Organized to provide a social, educational, religious, or other service • Habitat for Humanity, Red Crescent/Cross • For-Profit Corporation • Closed Corporation • Stock owned by relatively few people • Stock not sold to general public • Open Corporation • Stock is bought and sold on security exchanges • Can be purchased by any individual

23. Types of Corporations • S-Corporation (Subchapter-S Corporation) • Corporate structure designed for small business • Taxed as a partnership if there are 75 or fewer stockholders • No non-resident alien stockholders • Only one class of stock • Limited-Liability Company (LLC) • Combines the benefits of a corporation & partnership • Not limited to 75 stockholders

24. Mergers & Acquisitions • Hostile takeover • Types of mergers • Horizontal: Similar products / services • Vertical: Different but related firms • Conglomerate: Completely different industries • Merger Trends • Divestiture • Leveraged Buyout (LBO)

25. Franchising • Franchise • License to operate an individually owned business as though it were part of a chain of outlets or stores • The business itself • Franchising • Actual granting of a franchise

26. Franchising • Franchisor • Supplies a known & advertised business name • Supplies management skills • Supplies training & materials • Supplies method of doing business • Franchisee: • Supplies labor & capital • Operates the franchised business • Agrees to abide by the franchise agreement

27. Franchising Advantages • Franchisor • Fast, Selective Distribution • Motivated Franchisee • Franchisee • Opportunity to start a business • Business Experience of others • Nationally recognized name • National promotional campaigns

28. Franchising Disadvantages • Mainly from Franchisee’s Viewpoint: • Franchisor’s contract can dictate every aspect of the business • Pay for security • Competition from same company