Understanding Entrepreneurship and Small Business Chapter 3 Understanding Entrepreneurship and Small Business PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Key Topics Small business and its importance in the economy Entrepreneurship versus small business Starting and funding a small business Sole proprietorships, partnerships, and corporations Creating and managing corporations Corporate trends and issues Copyright © 2005 Prentice Hall, Inc. All rights reserved.

What Is “Small Business”? Independently owned and managed business that does not dominate its market Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Small business plays a critical role in the U.S. economy. Job Creation Innovation Importance to Big Businesses Copyright © 2005 Prentice Hall, Inc. All rights reserved.

“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage.” —Victor Kiam Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Entrepreneurship vs. Small Business Accepts the risks and opportunities of creating, operating and growing a new business. Small Business Owner: Does not have plans for growth. Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Buying an Existing Business Getting Started Buying an Existing Business Starting From Scratch Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Financing the Small Business Personal resources Loans Venture capital companies Small-business investment companies Small Business Association (SBA) Financial aid and management advice Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Franchising: An Ownership Opportunity Advantages Proven business opportunity Access to management expertise Disadvantages Start-up costs On-going payments Management rules and restrictions Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Trends in Small Business Start-ups Emergence of E-commerce Crossovers From Big Business Opportunities for Minorities & Women Global Opportunities Increased Survival Rates Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Reasons for Success and Failure Poor management Neglect Weak control systems Insufficient capital Success Hard work, drive, dedication Market demand Strong management Luck!!! Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Sole Proprietorships Advantages: Disadvantages: Freedom Simple to form Low start up costs Tax benefits Disadvantages: Unlimited Liability Limited resources Limited fundraising capability Lack of continuity Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Partnerships Advantages: Disadvantages: More talent and money More fundraising capability Relatively easy to form Tax benefits Disadvantages: Unlimited liability Disagreements among partners Lack of continuity Unlimited Liability Legal principle holding owners responsible for paying off all debts of a business Copyright © 2005 Prentice Hall, Inc. All rights reserved.

What is a Corporation? “An artificial being, invisible, intangible, and existing only in contemplation of the law.” Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Corporations Advantages: Disadvantages: Limited Liability Continuity Stronger fundraising capability Disadvantages: Double taxation Fluid control Complicated and expensive to form Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Types of Corporations Closely Held (Private) Corporation Publicly Held (Public) Corporation Subchapter S Corporation Limited Liability Corporation (LLC) Professional Corporation Multinational or Transnational Corporation Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Corporate Governance Hierarchy Stockholders Board of Directors Officers Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Stockholders: Owners of Corporations Stock: A share of ownership in a corporation Common Stock Preferred Stock Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Special Issues in Corporate Ownership Joint Ventures and Strategic Alliances Employee Stock Ownership Programs (ESOPS) Institutional Ownership Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Special Issues in Corporate Ownership Mergers and Acquisitions (M&As) Mergers & Acquisitions (M&As) Divestitures and Spin-offs Divestitures & Spin-offs Divestitures & Spin-offs Copyright © 2005 Prentice Hall, Inc. All rights reserved.

Three Forms of Business Business Form Liability Continuity Management Investment Sources Proprietorship Personal, limited Ends with death or decision of owner Personal, unrestricted Personal General Partnership Personal, unlimited Ends with death or decision of any partner Unrestricted or depends on partnership agreement Personal by partner(s) Corporation Capital invested As stated in charter, perpetual or for specified period of years Under control of board of directors, which is selected by stockholders Purchase of stock Copyright © 2005 Prentice Hall, Inc. All rights reserved. Copyright ©2003 Prentice Hall, Inc. 4 - 21

Chapter Review Define small business and explain its importance to the U.S. economy. Distinguish between entrepreneurship and small business. Describe the start-up decisions made by small businesses and the potential sources of financial aid and management advice. Describe sole proprietorships, partnerships, and corporations, and explain the advantages and disadvantages of each. Identify the different types of corporations. Copyright © 2005 Prentice Hall, Inc. All rights reserved.