•Sole Proprietorship•Partnership

•Corporations

Forms of Ownership Comparison

Sole ProprietorshipsOldest and Most Common dated by to

colonial timesOwner and Managed by one individual with

minimum amount of help$$$ capital used to start business comes from

the owner’s savings or getting a loan.

Advantages and Disadvantages of Sole Proprietorships

Advantages•Ease of Starting

•Control

•Own all Profits

•Use Owners Abilities

•Tax Breaks – are tax exemptions that help reduce your taxable income by claiming business expenses. Tax breaks are incentives made by the government to entice people to go into business for themselves (free economy)

•Secrecy

•Ease of dissolving

Disadvantages•Unlimted Liability - means you are responsible for the debts that are incurred by the business and if the debt goes beyond what the business is worth, you could loose your personal property, such as your house, etc.)

•Difficult to Raise Capital – people who own a sole proprietorship start their business with either their own personal savings and a bank load.

•Limited Management Abilities

•Time Demands - most people who own their own business spend 60-80 hours a week at work for the first 3 years.

•Employee hiring and retention

PartnershipsTwo or more people own a partnershipThey share everythingCan be based on a written, oral, or implied

agreement (legally)Two types of partners

General partner – has unlimited liabilityLimited partner – has limited liability

** Terms of each partner are specifically defined in the Articles of Partnership.

Types of PartnershipsMLP (Master Limited Partnership)

Sells units traded on recognized stock exchangeLimited liabilityTransferability of ownershipPays no corporate taxes because the earnings are

passed directly to unit holders. They pay their own individual income taxes.

Example is the NBA (National Basketball Association.

Joint Venture a partnership formed for a special purpose or project.

When the project is completed, the joint venture is dissolved.

Articles of Partnership(the partnership contract)Name of the business partnershipType of businessLocations of the businessExpected life of the partnership or re-evaluation

date.Procedures for distributing profits and covering

lossesResponsibilities and duties of each partnerProcedures for withdrawal of fundsProcedures for dissolving a partnershipTime length of a partnership is determined by the

language in the Articles of partnership. Investments are usually frozen at least 3 years.

Advantages and Disadvantages of Partnerships

Advantages•More financial capital

•Combined managerial skills

•Ease of starting

•Clear legal status

•Tax Breaks/advantages

•Limited liability for limited partners

Disadvantages•Unlimited Liability for general partners

•Difficult to Raise Capital

•Frozen investment

•Instability

•Potential disagreements

CorporationsA corporation is a business that is a legal

entity separate from its owners. It has legal rights of an individual. It can:Own propertyOwe money (take out loans)Hire and terminate employeesSue or be sued by other persons and/or other

corporationsA corporation is owned by

shareholders/stockholders.

Types of CorporationsDomestic Corporation – a corporation that

conducts business in the state in which it was incorporated.

Foreign Corporation – A corporation that conducts business in a state other than the state it was incorporated in.

Steps to Incorporation1. Fill out the Articles of Incorporation – application for a

charter.2. The form gets reviewed by state government officials3. The State sends back a charter (a state’s written agreement

giving a corporation the right to operate a business.4. All shareholders meet and elect a Board of Directors5. BOD approve the bylaws (rules and regulations of a

corporation)6. Select managers and make any new decisions needed to

start the business. Managers make the day to day decisions while the BOD make periodic decisions.

7. A corporate policy is established by a BOD which is elected by the shareholders. (The more shares you own, the more votes you have.

What is a proxy?A proxy is a written statement signed by a

shareholder of a corporation allowing someone else to cast his or her number of votes.

Mergers and AcquisitionsMerger – a process in which one firm buys the

assets and assumes the obligations of another company.

Horizontal Merger – occurs when competitive firms in the same market merge into a single firm.

Vertical Merger – when a firm mergers together with its supplier or distributor

Conglomerate Merger – firms merging together selling goods in unrelated markets.

Acquisition – the process in which one firm buys the assets and assumes the obligations of another company.

Sissie’s DairySonny’s Fruit

Orchard

Sports Town USAGramp’s

RestaurantGrannie’s

Restaurant

Hickory Tree

Pop’s Ice CreamMom’s Apple Pie

Homerun Baseball Company

Verticlal Merger Horizontal Merger

Conglomerate Merger

Other types of CorporationsS Corporation – a corporation with 35 or fewer

owners that files an income tax return as a partnership to take advantage of lower tax rates.

Cooperative (Co-op) – an organization in which people collectively own and operate a business in order to compete with big competitors.

Professional Service Association: Professional People (doctors, dentists, lawyers) joined together to form an organization under professional association laws treated as corporations for tax purposes. (profit sharing, benefits, pension plans limited liability)

Advantages

•Limited liability – investors (shareholders) can only loose what they have invested. They will not loose any personal property if the company goes bankrupt.

•Skilled Managers - BOD hire qualified people to run each department.

•Transfer of Ownership – You can sell your stock at any time and shares can also be willled.

•Greater capital base - Selling stocks helps corporations raise money to put into their business.

•Stability•Legal-entity status

Disadvantages

•Startup difficulty and costs•Lack of control•Multiple taxation - same profits get taxes twice.

•Lack of secrecy –

•Lack of personal interest

•Credit limitations

FranchisingFranchisee – one who buys a franchise store.

Franchisor – one who sells a franchise store (corp)Define: a business that has signed an

agreement with a franchiser (McDonalds, KFC, Dunkin Donuts) to use their name, operating plan, and overall procedures used in the firm to sell its products or services.

Three components must be present to a franchise to exist:A uniform system of operationsUtilization of trademark or service markFee (one time fee as well as monthly fees)

Categories of Franchises

Franchise TriviaWhat was the first franchise in US?Singer Sewing Machine What popular beverage held the next franchise in 1900?CocacolaWhat was the next to franchise in 1902?Rexall Drug StoreDuring 1930-1935 what industry became big in

Franchising?Gasoline (Aammco)What decade was considered the franchise boom?1950’s (90 percent of the franchise that started during

the franchise boom still exist today.

Franchise Advantages and Disadvantages!

Advantages

•Guidance•Promoted brand name•Proven product• Financial Assistance

Disadvantages

•Franchise fees•External control•Overdependence•Poor local reputation can spread

An innovative Risk taker that is responsible for most of the economic growth in our country. They often own their own business and/or create their own inventions.

Popular entrepreneurs include Henry Ford, Bill Gates, Jerry Greenfield, Ben Cohen, and Donald Trump.

An entrepreneur that works for a company.

Art Frye is an entrepreneur. He works for the 3M Corporation and invented the post it note.

Other BusinessTerms:Small Business –

one that is independently owned and operated and is no dominant in its field of operation.

A small business does not control a large market share.

There are sales limits.Maximum amount of employees – 500Minimum amount of employees – 250Maximum amount of sales.

Small Business cont.Advantages

Personal gratificationIndependenceFinancial gain

DisadvantagesSome risks are out of the entrepreneur’s control such

as fashion changes, competition, and labor problems.Irregular income – may have zero profit (should

count on not taking profits out of business for at least 3 years)

Long hours – hard on family (60-80 hours a week)

Other business terms cont.Business Incubator – a facility in which young

businesses can share space, costs, services, and information to help them get started. Once strong enough, they go out on their own.

Other business terms cont.Small Business Administration

Define: an independent agency of the Federal gvt. Created in l953 to protect the interests of small business owners: Their four primary area of assistance are in: Giving Loans/financial advice and assistance Management assistance Women and small business Minorities and small business