5 - 1 Ch, 5: Forms of Business Ownership

5 - 2 Ch, 5: Forms of Business Ownership Choosing a Form of Ownership There is no one “best” form of ownership. The best form of ownership depends on an entrepreneur’s particular situation. Key: Understanding the characteristics of each form of ownership and how well they match an entrepreneur’s business and personal circumstances.

5 - 3 Ch, 5: Forms of Business Ownership Factors Affecting the Choice Tax considerations Liability exposure Start-up and future capital requirements Control Managerial ability Business goals Management succession plans Cost of formation

5 - 4 Ch, 5: Forms of Business Ownership Major Forms of Ownership Sole Proprietorship (Ownership) General Partnership Limited Partnership Corporation Joint Venture

Forms of Business Ownership Businesses owned and operated by one individual; the most common form of business organization in the United States. Usually employing less than 50 people. Sole Proprietorship

5 - 6 Ch, 5: Forms of Business Ownership Advantages of the Sole Proprietorship Simple to create Least costly form to begin Profit incentive Total decision making authority No special legal restrictions Easy to discontinue

5 - 7 Ch, 5: Forms of Business Ownership Disadvantages of the Sole Proprietorship Unlimited personal liability Limited skills and capabilities Feelings of isolation Limited access to capital Lack of continuity of the business

5 - 8 Ch, 5: Forms of Business Ownership Partnership An association of two or more people who co-own a business for the purpose of making a profit. Always wise to create a partnership agreement. The best partnerships are built on trust and respect.

5 - 9 Ch, 5: Forms of Business Ownership Types of Partners General partnership A partnership that involves a complete sharing in both the management and the liability of the business Example: Lawyers, accountants, architects Limited partnership A business organization that has at least one general partner, who assumes unlimited liability, and at least one limited partner(usually investors) whose liability is limited to his or her investment in the business. Example: real estate partnership

Types of Partners Two types of limited partners: 1.Silent partners – not active in a business but are generally known to be members of the partnership 2.Sleeping partners – neither active nor generally known to be associated with the business Ch, 5: Forms of Business Ownership

Ch, 5: Forms of Business Ownership Advantages of the Partnership Easy to establish Complementary skills of partners Division of profits Larger pool of capital Ability to attract limited partners Minimal government regulation Flexibility Taxation

Ch, 5: Forms of Business Ownership Disadvantages of the Partnership Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnership interest without dissolving the partnership Potential for personality and authority conflicts Partners bound by law of agency

Corporations A Corporation is created (incorporated) under the laws of the state in which it incorporates. The individuals creating the corporation are called incorporators such as KİPA, KOÇTAŞ…etc. Creating a Corporation

Ch, 5: Forms of Business Ownership Corporation A separate legal entity from its owners. Types of corporations: ► Domestic – a corporation doing business in the state in which it is incorporated. ► Foreign – a corporation doing business in a state other than the state in which it is incorporated. ► Alien – a corporation formed in another country but doing business in the Turkey

Ch, 5: Forms of Business Ownership Corporation Types of corporations: ► Publicly held – a corporation that has a large number of shareholders and whose stock usually is traded on one of the large stock exchanges. ► Closely held – a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.

Ch, 5: Forms of Business Ownership Advantages of the Corporation Limited liability of stockholders Ability to attract capital Ability to continue indefinitely Transferable ownership

Ch, 5: Forms of Business Ownership Disadvantages of the Corporation Cost and time of incorporation process Double taxation Potential for diminished managerial incentives Legal requirements and regulatory “red tape” Potential loss of control by founder(s)

Ch, 5: Forms of Business Ownership The Professional Corporation Designed for professions – lawyers, doctors, dentists, accountants and other professionals Created in the same manner as a corporation Identified by the abbreviations: ► P.C. – Professional Corporation ► P.A. – Professional Association ► S.C. – Service Corporation

Ch, 5: Forms of Business Ownership The Joint Venture Much like a partnership, but it: ► Is formed for a specific purpose ► Has a beginning and an end

Ch, 5: Forms of Business Ownership Conclusion  The “right” choice of the form of ownership is unique to every entrepreneur and their business.  Each form has advantages and disadvantages.  The entrepreneur must be thoughtful and strategic about this important decision.

Assume that you are planning to open a bookstore across our university. What kind of an ownership would you prefer for your business? Why? Discuss your answer by referring to the advantages and disadvantages of the “business ownership” you prefer.

Ch, 5: Forms of Business Ownership Please discover the meaning of shareholder & List your shareholders in your bookstore Please do not use computers for your homewors. It must be written by hand. Do not spent more than one page for each answer

Ch. 6: Franchising and the Entrepreneur

Ch. 6: Franchising and the Entrepreneur Franchising A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system.

Ch. 6: Franchising and the Entrepreneur Franchising Basics Franchisee gets the right to use all of the elements of a fully integrated business operation. Essence of what franchisees purchase from the franchisors: Experience. Key Question: “What can a franchise do for me that I cannot do for myself?”

Ch. 6: Franchising and the Entrepreneur Benefits of Franchising A business system Management training and support Start-up Ongoing Brand name appeal “Cloning” Standardized quality of goods and services

Ch. 6: Franchising and the Entrepreneur Benefits of Franchising National advertising programs Franchisees contribute 1% to 5% of sales. Financial assistance About 20% of franchisors offer direct financial assistance to franchisees. Proven products and business formats

Ch. 6: Franchising and the Entrepreneur Benefits of Franchising Centralized buying power Site selection and regional protection Important issue: Regional encroachment (Violation) Greater chance for success

Ch. 6: Franchising and the Entrepreneur Drawbacks of Franchising Franchise fees and ongoing royalties Strict obedience to standardized operations Strict obedience to standardized operations Restrictions on purchasing Restrictions on purchasing Approved suppliers only Approved suppliers only

Ch. 6: Franchising and the Entrepreneur Drawbacks of Franchising Limited product line Contract terms and renewal Average term = 10.3 years Unsatisfactory training programs Market overload Less freedom – “No independence” “Happy prisoners” (continued)

Ch. 6: Franchising and the Entrepreneur Ten Myths of Franchising 1.Franchising is the safest way to go into business because franchises never fail. 2.I’ll be able to open my franchise for less money than the franchiser estimates. 3.The bigger the franchise organization, the more successful I’ll be. 4.I’ll use 80 percent of the franchiser’s business system, but I’ll improve upon by substituting my experience and know-how.

Ch. 6: Franchising and the Entrepreneur Ten Myths of Franchising 5. All franchises are the same. 6. I don’t have to be a hands-on manager. I can be an absentee owner and still be very successful. 7. Anyone can be a satisfied, successful franchise owner. (continued)

Ch. 6: Franchising and the Entrepreneur Ten Myths of Franchising 8. Franchising is the cheapest way to get into business for yourself. 9. The franchiser will solve my business problems for me; after all, that’s why I pay an ongoing royalty fee. 10.Once I open my franchise, I’ll be able to run things the way I want to. (continued)

Ch. 6: Franchising and the Entrepreneur The Right Way to Buy a Franchise Evaluate yourself - What do you like and dislike? Research your market. Consider your franchise options. Get a copy of the agreement and read it! Talk to existing franchisees. Ask the franchiser some tough questions. Make your choice.

Ch. 6: Franchising and the Entrepreneur Factors That Make a Franchise Attractive Unique concept or marketing approach Profitability Registered trademark Business system that works Solid training program Affordability Positive relationship with franchisees In addition to the text

Ch. 6: Franchising and the Entrepreneur Conclusion Franchising: ► Is a key part of the small business sector ► Increases the chance of business success for the entrepreneur ► Growth continues