3 Sole Proprietorships Oldest and Most Common dated by to colonial times Owner and Managed by one individual with minimum amount of help$$$ capital used to start business comes from the owner’s savings or getting a loan.
4 Advantages and Disadvantages of Sole Proprietorships Ease of StartingControlOwn all ProfitsUse Owners AbilitiesTax Breaks – are tax exemptions that help reduce your taxable income by claiming business expenses. Tax breaks are incentives made by the government to entice people to go into business for themselves (free economy)SecrecyEase of dissolvingUnlimted Liability - means you are responsible for the debts that are incurred by the business and if the debt goes beyond what the business is worth, you could loose your personal property, such as your house, etc.)Difficult to Raise Capital – people who own a sole proprietorship start their business with either their own personal savings and a bank load.Limited Management AbilitiesTime Demands - most people who own their own business spend hours a week at work for the first 3 years.Employee hiring and retention
5 Partnerships Two or more people own a partnership They share everythingCan be based on a written, oral, or implied agreement (legally)Two types of partnersGeneral partner – has unlimited liabilityLimited partner – has limited liability** Terms of each partner are specifically defined in the Articles of Partnership.
6 Types of Partnerships MLP (Master Limited Partnership) Joint Venture Sells units traded on recognized stock exchangeLimited liabilityTransferability of ownershipPays no corporate taxes because the earnings are passed directly to unit holders. They pay their own individual income taxes.Example is the NBA (National Basketball Association.Joint Venturea partnership formed for a special purpose or project. When the project is completed, the joint venture is dissolved.
7 Articles of Partnership (the partnership contract) Name of the business partnershipType of businessLocations of the businessExpected life of the partnership or re-evaluation date.Procedures for distributing profits and covering lossesResponsibilities and duties of each partnerProcedures for withdrawal of fundsProcedures for dissolving a partnershipTime length of a partnership is determined by the language in the Articles of partnership. Investments are usually frozen at least 3 years.
8 Advantages and Disadvantages of Partnerships More financial capitalCombined managerial skillsEase of startingClear legal statusTax Breaks/advantagesLimited liability for limited partnersUnlimited Liability for general partnersDifficult to Raise CapitalFrozen investmentInstabilityPotential disagreements
9 CorporationsA corporation is a business that is a legal entity separate from its owners. It has legal rights of an individual. It can:Own propertyOwe money (take out loans)Hire and terminate employeesSue or be sued by other persons and/or other corporationsA corporation is owned by shareholders/stockholders.
10 Types of CorporationsDomestic Corporation – a corporation that conducts business in the state in which it was incorporated.Foreign Corporation – A corporation that conducts business in a state other than the state it was incorporated in.
11 Steps to Incorporation Fill out the Articles of Incorporation – application for a charter.The form gets reviewed by state government officialsThe State sends back a charter (a state’s written agreement giving a corporation the right to operate a business.All shareholders meet and elect a Board of DirectorsBOD approve the bylaws (rules and regulations of a corporation)Select managers and make any new decisions needed to start the business. Managers make the day to day decisions while the BOD make periodic decisions.A corporate policy is established by a BOD which is elected by the shareholders. (The more shares you own, the more votes you have.
12 What is a proxy?A proxy is a written statement signed by a shareholder of a corporation allowing someone else to cast his or her number of votes.
13 Mergers and Acquisitions Merger – a process in which one firm buys the assets and assumes the obligations of another company.Horizontal Merger – occurs when competitive firms in the same market merge into a single firm.Vertical Merger – when a firm mergers together with its supplier or distributorConglomerate Merger – firms merging together selling goods in unrelated markets.Acquisition – the process in which one firm buys the assets and assumes the obligations of another company.
14 Homerun Baseball Company Sissie’s DairySonny’s Fruit OrchardHickory TreeVerticlal MergerConglomerate MergerPop’s Ice CreamHomerun Baseball CompanyMom’s Apple PieGrannie’s RestaurantGramp’s RestaurantSports Town USAHorizontal Merger
15 Other types of Corporations S Corporation – a corporation with 35 or fewer owners that files an income tax return as a partnership to take advantage of lower tax rates.Cooperative (Co-op) – an organization in which people collectively own and operate a business in order to compete with big competitors.Professional Service Association: Professional People (doctors, dentists, lawyers) joined together to form an organization under professional association laws treated as corporations for tax purposes. (profit sharing, benefits, pension plans limited liability)
16 Advantages and Disadvantages of Corporations. Limited liability – investors (shareholders) can only loose what they have invested. They will not loose any personal property if the company goes bankrupt.Skilled Managers - BOD hire qualified people to run each department.Transfer of Ownership – You can sell your stock at any time and shares can also be willled.Greater capital base - Selling stocks helps corporations raise money to put into their business.StabilityLegal-entity statusDisadvantagesStartup difficulty and costsLack of controlMultiple taxation - same profits get taxes twice.Lack of secrecy –Lack of personal interestCredit limitations
17 Franchising Franchisee – one who buys a franchise store Franchising Franchisee – one who buys a franchise store. Franchisor – one who sells a franchise store (corp)Define: a business that has signed an agreement with a franchiser (McDonalds, KFC, Dunkin Donuts) to use their name, operating plan, and overall procedures used in the firm to sell its products or services.Three components must be present to a franchise to exist:A uniform system of operationsUtilization of trademark or service markFee (one time fee as well as monthly fees)
19 Franchise Trivia Cocacola Rexall Drug Store Gasoline (Aammco) What was the first franchise in US?Singer Sewing MachineWhat popular beverage held the next franchise in 1900?CocacolaWhat was the next to franchise in 1902?Rexall Drug StoreDuring what industry became big in Franchising?Gasoline (Aammco)What decade was considered the franchise boom?1950’s (90 percent of the franchise that started during the franchise boom still exist today.
20 Franchise Advantages and Disadvantages! GuidancePromoted brand nameProven productFinancial AssistanceDisadvantagesFranchise feesExternal controlOverdependencePoor local reputation can spread
21 EntrepreneurAn innovative Risk taker that is responsible for most of the economic growth in our country. They often own their own business and/or create their own inventions.Popular entrepreneurs include Henry Ford, Bill Gates, Jerry Greenfield, Ben Cohen, and Donald Trump.
22 Intrapreneur An entrepreneur that works for a company. Art Frye is an entrepreneur. He works for the 3M Corporation and invented the post it note.
23 Other BusinessTerms: Small Business – one that is independently owned and operated and is no dominant in its field of operation.A small business does not control a large market share.There are sales limits.Maximum amount of employees – 500Minimum amount of employees – 250Maximum amount of sales.
24 Small Business cont. Advantages Disadvantages Personal gratification IndependenceFinancial gainDisadvantagesSome risks are out of the entrepreneur’s control such as fashion changes, competition, and labor problems.Irregular income – may have zero profit (should count on not taking profits out of business for at least 3 years)Long hours – hard on family (60-80 hours a week)
25 Other business terms cont. Business Incubator – a facility in which young businesses can share space, costs, services, and information to help them get started. Once strong enough, they go out on their own.
26 Other business terms cont. Small Business AdministrationDefine: an independent agency of the Federal gvt. Created in l953 to protect the interests of small business owners: Their four primary area of assistance are in:Giving Loans/financial advice and assistanceManagement assistanceWomen and small businessMinorities and small business