Why might a person want to own their own business?
A chance to be in control A chance to make decisions A chance to invest and make $$ -- profit Read more…. Read more….
Thousands of people are business owners; however, the amount of control they have, how decisions are made, the sources of money for the business, and control over profits – depends on the form of ownership.
How many major forms of business ownerships are there?
What are those three (3) forms of business ownership?
The (3) forms of business ownership are… Proprietorship; aka sole proprietorship (click to define) (click to define) Partnership (click to define) (click to define) Corporation (click to define) (click to define)
A proprietorship is… A business owned and operated by just one person 7 Characteristics? 7 Characteristics? Return to Major Forms
A partnership is… A business owned and controlled by two or more (> = 2) people who entered into an agreementagreement 4 Characteristics? 4 Characteristics? Return to Major Forms
What is that agreement called? PARTNERSHIP AGREEMENT Consists of? Return to Partnership
What does a partnership agreement consist of? Details the rules of procedures that guide ownership and operation. Identifies the business name and investment/contribution of each partner Shows how profit/losses will be divided Defines authority, duties, and responsibilities Details how the partnership can be dissolved (ended) Return to Partnership
A corporation is… A separate legal entity (body) formed by documents filed with a state; treated as an “individual” by governments 7 Characteristics? 7 Characteristics? Return to Major Forms
Characteristics of a Proprietorship (7) Easiest to start and end Few legal requirements Capital needs are minimal Sole control over all business activities Owner receives all profits Owner responsible for all business debts Personal/business assets can be claimed to pay off business debts Return to Major Forms
Characteristics of a Partnership (4) Quite easy to start All owners share responsibilities for key business decisions and functions Capital investments and profits are shared based on agreement Each partner is liable for the debts of the business, if it fails Return to Major Forms
Characteristics of a Corporation (7) Owned by one or more shareholders (persons who buy shares of stock) Managed by a board of directors (BoD)board of directors (BoD) More difficult to form Must meet more legal requirementslegal requirements All owners do not have direct involvement in decisions Owners will not have access to profits unless BoD approves dividends (profits shared) Liability (risk) of stockholders is limited to only amount invested
What are the advantages of choosing to operate your business as a proprietorship? Freedom of working for yourself (NO BOSS) Total control of the business Easy startup; minimal capital needed No business name needed; minimal gov’t regulations Business expenses can be used to reduce taxable income taxable income
What is taxable income? For example, if a proprietor earned $40,000 a year and generate a profit of $5,000 from the business, the government will expect a % of that $45,000 to be paid in taxes; 25% of $45K = $11,250 income taxes, but the business expenses = $2,000, then only $43,000 of earned income would be taxable; taxes only $10,750. $500 savings in taxes Resume Review
What are the disadvantages of choosing to operate your business as a proprietorship? The need to obtain required licenses and permits Limited capital and business skills Taxes will have to be paid on profits All risk is placed on the owner In the eyes of the law, the business and owner are the same
What are the advantages of choosing to operate your business as a partnership? Two or more people can contribute to the investment needed to start the business Added expertise to the business Good for people who share an idea for a business and work well together
What are the disadvantages of choosing to operate your business as a partnership? No protection for personal assets in case of debt Each partner is responsible for decisions made by all other partners Each partner can lose much more than the original amount invested If partner chooses to leave the partnership or dies, the partnership normally is dissolved.
What are the advantages of choosing to operate your business as a corporation? Liability of any owner is limited to amount invested. Amount of the business debt doesn’t matter Can invest, make a profit, and NOT take part in the day-to-day management and operation
What are the disadvantages of choosing to operate your business as a corporation? Decision making is shared by managers, the BoD, and shareholders More records are required and more laws that regulate operation Investors pay taxes on individual earnings from stocks; company must pay corporate taxes on profit because it is treated as an “individual.”
What other specialized forms of business ownership exists?
Specialized Partnerships and Corporations Limited liability partnership (Click to define) (Click to define) Joint venture (Click to define) (Click to define) S-corporation (Click to define) (Click to define) Limited liability company (LLC) (Click to define) (Click to define) Non-profit corporation (Click to define) (Click to define) Cooperatives and Franchises (Click to define) (Click to define)
A limited liability partnership is … a partnership that identifies some investors who cannot lose more than the amount of their investment, but they are not allowed to participate in the day-to-day management of the business. is difficult and costly to setup Return to Special Forms
A joint venture is … a unique business organized by two or more other businesses to operate for a limited time and for a specific project. Return to Special Forms
An S-corporation is … offers the limited liability of a corporation; all income is pass through to the owners based on their investment and is taxed on their individual tax returns. Return to Special Forms
An limited liability company (LLC) is … a combination of a partnership and corporation; provides liability protection for owners simpler requirements than corporation; document like partnership agreement must be developed Return to Special Forms
A non-profit corporation is … a group of people who join to do some activity that benefits the public. works in areas such as education, health care, charity, or the arts capital is generated by grants and donations must be organized as a corporation Return to Special Forms
A cooperative is … a company owned by members, serves their needs, and is managed in their interest. A franchise is… a written contract granting permission to operate a business to sell g/s in a set way. Read more… Read more… Return to Special Forms
What is a Board of Directors? The people who will make major policy and financial decisions for the business Return to Corporation
Cooperatives and Franchises Cooperatives Consumers form co-ops to purchases g/s cheaper as a group Businesses form co-ops to market the g/s needed by its members Larger numbers = greater bargaining power Read more… Read more…
Cooperatives and Franchises Franchises The company that owns the g/s and grants the rights to another business is known as the franchiser (i.e.,employer); examples – McDonald’s, Jiffy Lube, Merry Maids, etc. The company purchasing the rights to run the business is the franchisee (i.e., employee). Franchisee pays a fee and % of profit to franchiser. END of REVIEW
What are the legal requirements? Must file articles of incorporation witharticles of incorporation the state in which it will operate Must create corporate bylawscorporate bylaws Return to Corporation
What is an article of incorporation? A written legal document that defines ownership and operating procedures and conditions for the business Return to Legal Reqs
What are corporate bylaws? Details that are the operating procedures for the corporation Return to Corporation