1. Business Ownership “Own it Your Way” Mr. Johnson

2. Objectives Identify the 4 Common types of business ownership Discover the characteristics of each type of business ownership Discuss Business start – up strategies

3. Business Considerations Personal circumstances Financial needs How much capital you need to raise vs. the value of your assets Type of business you plan to start How much liability you plan to incur Nature of business Taxation Ownership Control

4. Four Types of Business Ownership Sole Proprietorship Partnership Corporation Hybrid Structures

5. Sole Proprietorships A Business owned by one person Sole right to profits & losses of a business Unlimited liability Bank will go after personal assets of business owner to pay off business debts Cars, boats, houses, etc… Over 70 percent of businesses operating in the U.S. today are sole Proprietorships Typically employing less than 50 employees

6. Sole Proprietorships Very easy to manage Types of businesses operating as a sole proprietorship Home based operations Service businesses Retail businesses Home renovation businesses Easy to avoid complicated legal issues Exceptions: Permits & Licenses

7. Sole Proprietorships Financial Considerations Typically do not need a lot of capital Make use of personal funds first Seeks loans from family members & friends Seeks loans from banks & venture capitalists Taxed on business owners personal income tax returns (filed annually) Videos

8. Partnerships Businesses owned by two or more people Should limit partnership to no more than 5 to 7 people Formed to combine strengths of partners to run a business Capital Experience Abilities or Skills

9. Partnerships Partners share the risk of loss & chance for profit Partners need to decide what each partner will contribute to the business & what each partner will take out of the business Example: 60 / 40 partnership Limited life Taxed on Personal income tax returns

10. Types of Partnerships General Partnership Each partner has unlimited liability Business debts can be paid for by partners personal assets Limited Partnership Permits a partner to invest in a business & have limited liability Typically financial partner doesn’t trust the product or service but wants to help Financial partner is excluded from day to day operations of firm Requires extensive gov’ Videos

11. Corporations Defined by the Supreme Court as an “artificial being, invisible, intangible, & existing only in the contemplation of the law” Functions independently from its owners Treated as a person in terms of: Legal rights Duties Powers

12. Corporations Corporations can: Borrow money or loan money Buy & sell goods Make contracts Sue or be sued Perform business activities Have an unlimited life

13. Corporations Ownership Stock Holders Limited liability Can only lose the amount you invested into the organization The more shares you own in a corporation the more control you have Voting through proxy statements

14. Corporations Less than 20 % of businesses operate as a corporation Corporations generate more than 90 % of sales in the U.S. economy Governed by a board of directors In charge of organizations officers CEO / COO / CFO/ Organizations officers run day to day operations

15. Types of Corporations Open – Public Corporations Close Corporations “S” Corporations Non Profit Corporations

16. Open / Public Corporations Typically sell millions of shares to the general public Subject to more government regulation & taxes than any other form of business Must provide financial info to public Expenses, sales, income, debts, assets, etc… Subject to double taxation

17. Close Corporations Shares are held privately Typically is not required to disclose finances to the public Subject to double taxation Firms profits Investors dividends

18. “S” Corporations A private corporation Taxed as individuals in a partnership Requires less than 75 share holders Must operate on a calendar year basis Subject to numerous government regulations

19. Non Profit Corporations Operates to accomplish a specific mission – generally to benefit society Does not operate to make a profit Income is used to cover organizational expenses Examples: Charities, Schools, Religious Activities, Education, Research Activities Normally exempt from taxation Funding received from fundraising, grants, &/or membership fees

20. Hybrids Owners are called members Enjoy advantages of corporations in relation to limited liability of owners assets Enjoy the advantages of sole proprietorships & partnerships in relation to control, etc…

21. Hybrids Two forms of Hybrid Ownership Limited Liability Partnership (LLP) Most similar to general partnership with advantages of corporation Mostly seen in the medical profession which protects partners of a firm Limited Liability Company (LLC) Most similar to a sole proprietorship with advantages of a corporation States require either one to two owners in a LLC Must fill out an Operating Agreement detailing what each member will contribute to the organization

22. Hybrid Benefits Limited Liability Limited Life Limited Taxation Profits are claimed on members personal income taxes Can either be member managed or manager managed Unlimited Owners / Members Wikipedia

23. Objective C Start-Up Business Strategies

24. Franchises A method of distributing recognized goods through & services through a legal agreement between two parties Franchisor: The seller or parent company Franchisee: The buyer Desirable as you are buying into a recognizable product / service

25. Franchising Procedure Identify a product / company you wish to buy into Contact the company Taco Bell example Taco Bell Sign a franchise agreement Pay a franchise fee Franchisee is responsible for expenses at your desired location – rent, utilities, etc… May be required to pay royalties on ongoing profits

26. Franchise Formats Business-Format Requires a close relationship between the franchisor & franchisee Franchisors provide training, financial guidance, & supply channels Franchisees benefit from national ad campaigns from parent company Franchisees are limited to offering specific goods & services, using certain vendors, Operating at certain hours, & presenting a specific appearance Piggybacking

27. Franchise Formats Product Trade-Name Franchise An independent sales relationship between a supplier (franchisor) & a dealer (franchisee) to stock & sell a specific or exclusive line of products Products are bought on consignment Name of business is chosen by franchisee Franchisee typically has a tremendous amount of experience & money Typically used in automobile industry, beverage industry, Petroleum products industries