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Part IV – Initiating Entrepreneurial Ventures Chapter 11 – Assessment and Evaluation of Entrepreneurial Opportunities Chapter 12 – Legal Structures for.

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Presentation on theme: "Part IV – Initiating Entrepreneurial Ventures Chapter 11 – Assessment and Evaluation of Entrepreneurial Opportunities Chapter 12 – Legal Structures for."— Presentation transcript:

1 Part IV – Initiating Entrepreneurial Ventures Chapter 11 – Assessment and Evaluation of Entrepreneurial Opportunities Chapter 12 – Legal Structures for New Business Ventures Chapter 13 – Legal Issues Related to Emerging Ventures Chapter 14 – Sources of Capital for Entrepreneurs Copyright (c) 2004 by South-Western, a division of Thomson Learning. All rights reserved.

2 Chapter 12 – Legal Structures For New Business Ventures

3 Sole Proprietorships A sole proprietorship is a business that is owned and operated by one person. The enterprise has no existence apart from its owner.

4 Advantages Ease of formationEase of formation Sole ownership of profitsSole ownership of profits Decision making and control vested in one ownerDecision making and control vested in one owner FlexibilityFlexibility Relative freedom from governmental controlRelative freedom from governmental control Freedom from corporate business taxesFreedom from corporate business taxes

5 Disadvantages Unlimited liabilityUnlimited liability Lack of continuityLack of continuity Less available capitalLess available capital Relative difficulty obtaining long-term financingRelative difficulty obtaining long-term financing Relatively limited viewpoint and experienceRelatively limited viewpoint and experience

6 Partnerships A partnership is an association of two or more persons acting as co-owners of a business for profit.A partnership is an association of two or more persons acting as co-owners of a business for profit. The Uniform Partnership Act is generally followed by most states as the guide for legal requirements in forming partnerships.The Uniform Partnership Act is generally followed by most states as the guide for legal requirements in forming partnerships. The articles of partnership clearly outline the financial and managerial contributions of the partners and carefully delineate the roles in the partnership relationship.The articles of partnership clearly outline the financial and managerial contributions of the partners and carefully delineate the roles in the partnership relationship.

7 Advantages Ease of formationEase of formation Direct rewardsDirect rewards Growth and performance facilitatedGrowth and performance facilitated FlexibilityFlexibility Relative freedom from governmental control and regulationRelative freedom from governmental control and regulation Possible tax advantagePossible tax advantage

8 Disadvantages Unlimited liability of at least one partnerUnlimited liability of at least one partner Lack of continuityLack of continuity Relative difficulty obtaining large sums of capitalRelative difficulty obtaining large sums of capital Bound by the acts of just one partnerBound by the acts of just one partner Difficulty of disposing of partnership interestDifficulty of disposing of partnership interest

9 Factors Associated with Partnership Success Partnership Attributes CommitmentCommitment CoordinationCoordination InterdependenceInterdependence TrustTrust Communication Behavior QualityQuality Information SharingInformation Sharing ParticipationParticipation Conflict Resolution Techniques Joint Problem SolvingJoint Problem Solving PersuasionPersuasion SmoothingSmoothing DominationDomination Harsh WordsHarsh Words ArbitrationArbitration Partnership Success SatisfactionSatisfaction Dyadic SalesDyadic Sales

10 Corporations A corporation is “an artificial being, invisible, intangible, and existing only in contemplation of the law” *. As such, a corporation is a separate legal entity apart from the individuals who own it. *Supreme Court Justice John MarshallA corporation is “an artificial being, invisible, intangible, and existing only in contemplation of the law” *. As such, a corporation is a separate legal entity apart from the individuals who own it. *Supreme Court Justice John Marshall

11 Advantages Limited liabilityLimited liability Transfer of ownershipTransfer of ownership Unlimited lifeUnlimited life Relative ease of securing capital in large amountsRelative ease of securing capital in large amounts Increased ability and expertiseIncreased ability and expertise

12 Disadvantages Activity restrictionsActivity restrictions Lack of representationLack of representation RegulationRegulation Organizing expensesOrganizing expenses Double taxationDouble taxation

13 Specific Forms of Partnerships and Corporations

14 Limited Partnerships Permits capital investment without responsibility for management and without liability for losses beyond the initial investment.Permits capital investment without responsibility for management and without liability for losses beyond the initial investment. Limited partnerships are governed by the Uniform Limited Partnerships Act (ULPA).Limited partnerships are governed by the Uniform Limited Partnerships Act (ULPA).

15 Limited Liability Partnerships The limited liability partnership (LLP) is a relatively new form of partnership that allows professionals the tax benefits of a partnership while avoiding personal liability for the malpractice of other partners.The limited liability partnership (LLP) is a relatively new form of partnership that allows professionals the tax benefits of a partnership while avoiding personal liability for the malpractice of other partners.

16 S Corporations Formerly termed a Subchapter S corporation, the S corporation takes its name from Subchapter S of the Internal Revenue Code, under which a business can seek to avoid the imposition of income taxes at the corporate level yet retain some of the benefits of a corporate form (especially the limited liability).Formerly termed a Subchapter S corporation, the S corporation takes its name from Subchapter S of the Internal Revenue Code, under which a business can seek to avoid the imposition of income taxes at the corporate level yet retain some of the benefits of a corporate form (especially the limited liability). Commonly known as a “tax option corporation,” an S corporation is taxed similarly to a partnership.Commonly known as a “tax option corporation,” an S corporation is taxed similarly to a partnership.

17 Limited Liability Companies The LLC is a hybrid form of business enterprise that offers the limited liability of a corporation but the tax advantages of a partnership.The LLC is a hybrid form of business enterprise that offers the limited liability of a corporation but the tax advantages of a partnership. Perhaps the greatest disadvantage is that LLC statutes differ from state to state, and thus any firm engaged in multistate operations may face difficulties.Perhaps the greatest disadvantage is that LLC statutes differ from state to state, and thus any firm engaged in multistate operations may face difficulties.

18 Other Corporation Classifications Domestic and Foreign CorporationsDomestic and Foreign Corporations Public and Private CorporationsPublic and Private Corporations Nonprofit CorporationsNonprofit Corporations Professional CorporationsProfessional Corporations Close CorporationsClose Corporations

19 Franchising A franchise is any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services. A franchisee (a purchaser of a franchise) is generally legally independent but economically dependent on the integrated business system of the franchisor (the seller of the franchise).A franchise is any arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services. A franchisee (a purchaser of a franchise) is generally legally independent but economically dependent on the integrated business system of the franchisor (the seller of the franchise).

20 Advantages Training and guidanceTraining and guidance Brand-name appealBrand-name appeal A proven track recordA proven track record Financial assistanceFinancial assistance

21 Disadvantages Franchise feesFranchise fees Franchisor controlFranchisor control Unfulfilled promisesUnfulfilled promises

22 The Costs of Franchising 1.The Basic Franchise Fee 2.Insurance 3.Opening Product Inventory 4.Remodeling and Leasehold Improvements 5.Utility Charges 6.Payroll 7.Debt Service 8.Bookkeeping and Accounting Fees 9.Legal and Professional Fees 10.State and Local Licenses, Permits, and Certificates

23 Franchise Law: The Uniform Franchise Offering Circular (UFOC) The UFOC is divided into 23 items that provide different segments of information for prospective franchisees.


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