Business Structures.

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Presentation transcript:

Business Structures

Business Ownership Opportunities If you were to start your own business what would it be? How would you enter a business? Four ways: Purchase an existing business Take over a family business Start a new business Purchase a franchise What organizational form will it take?

Forms of Business Organization Sole Proprietorship- A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business. Partnership- A business with two or more owners who share the firm's profits and losses. Corporation- A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. Franchise- A legal agreement to sell a parent company’s product or service in a geographic area.

Sole Proprietorship Advantages Disadvantages All business decisions are the owner’s Low start-up costs All profits go to the owner Greater freedom Very little government control (keep accurate tax and employee records) Income taxes once Unlimited liability- personally responsible for any losses. Long working hours Difficult to obtain financial capital All business decisions and risks are the owner’s Limited life span

Partnership Advantages Disadvantages Easy to form Low start-up costs Divided liability Easier to obtain financial capital Opportunity to gain complementary skills Income taxes once Unlimited liability (in a general partnership) Divided authority Divided profits Can be difficult to find the right partner Potential disagreements among partners Limited life span Articles of Partnership –Legal document that clearly lays out the responsibilities of the each partner, how the profits are distributed, and how much of the company each owns. Limited partnership is less risky. The limited partnership is only responsible for their contribution.

Corporation Advantages Disadvantages Limited liability Specialized managerial functions Easier to raise financial capital Perpetual existence Freely transferable shares of stock Greater government regulation Expensive to organize Double taxation Not easily dissolved A lot of paperwork Extra costs for lawyers, fees, etc.

Corporations Charter- a government document that gives permission to create a corporation. Stockholders- purchases share or shares of ownership in a corporation. Public vs. Private Public – is a company who offers its securities for sale to the general public. Private- are owned by a relatively small number of shareholders who owns stocks that are not traded publicly, many family-owned. “S” Corporation-is treated as a partnership and not as a corporation for tax purposes. It requires Articles of Incorporation which outlines the primary rules governing the management of a “S” corporation.

Franchise Advantages Disadvantages Proven idea Brand name Support from franchisor Exclusive rights Established relationships with suppliers Financing may be easier than starting from scratch Restrictions from franchisor Royalty fees – a percent of the gross profits May be expensive to own and operate Stiff penalties from franchisor if business is sold or closed Added costs for legal and accounting services Loss of individuality Disclosure statement should be carefully negotiated to outline all rules, regulations and fees upfront.

Profit vs. Nonprofit Profit organizations use resources to produce goods and services in hopes of earning a profit for their owners. Ford Motor Company Nonprofit organizations work in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners. American Red Cross

Nonprofit Organizations Community or civic organizations-ex. Churches, Schools Cooperatives- Consumer, Service, Producer – Bulk Food stores, Credit Unions, Farmers Markets Government-helping to make sure the economy runs smoothly while providing goods and services. Other Organizations Labor Unions- UAW, an economic institution that represents an organized group of workers (by industry or by type of worker regardless of the industry) to negotiate with management by means of collective bargaining. Professional Organizations-AMA Business Organization- Chamber of Commerce, BBB Households