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Different Types of Businesses
Forms of Business Ownership
Determining Type of Business Ownership
Other Considerations
UNIT 1.03
Sole Proprietor
Partnership
Corporation
TYPES OF BUSINESS
A business owned by one person
Most common legal form of ownership for new businesses
15-20 Million sole proprietors in United States
Accounts for 75% of businesses in US
SOLE PROPRIETOR
Pros:Control the entire businessKeep all of the profits Make decisions quicklyEasy to establishPay fewer taxes
ConsUnlimited liability
SOLE PROPRIETOR
A business owned by 2 or more persons who share responsibilities and profi ts/losses
Partnership Agreement (not fi led with the government) Name of the new business Amount each person is to invest in the business Amount each partner is to draw in salary/profit How profits/losses after salaries are paid will be shared in
proportion to each partner’s investment Responsibilities of the partners in the entity What will happen in the event of death of a partner(s)
3 Million business partnerships in United States
PARTNERSHIP
Pros:Combine talents and financial resourcesShare in responsibility of running the business and making decisions
Relatively easy to establishPays less taxes than a corporation
Cons:Unlimited liabilityPotential for disagreementsLoss of partner could mean end of business
PARTNERSHIP
A business organization that operates as a legal entity separate from its owners
Recognized as a person under the law
Articles of Incorporation
Sell Stock
Most revenue generated from this type of business
CORPORATION
Key Terms Stockholders/Shareholders: People who own stock in
a corporation
Board of Directors: A group of people elected by shareholders to guide a corporation
Corporate Offi cers: are the directors and senior level management of a corporation
Charter: a license to operate from that state
Proxy: ability of a shareholder to vote on the affairs of a company
CORPORATION
Pros:Limited liabilityShare of the profitsNo management responsibilityCan raise money by selling stockEasier to get credit
Cons:Legal red tape Increased tax burden
CORPORATION
BUSINESS OWNERSHIP DISTRIBUTION
the potential risks and liabilities of your business
the formalities and expenses involved in establishing and maintaining the various business structures
your income tax situation
your investment needs
DETERMINING TYPE OF BUSINESS OWNERSHIP
Franchise
Extractor
Producer
Processor
Manufacturer
Distribution
Service Firms
OTHER TYPES OF BUSINESSES
FRANCHISE
A contractual agreement to sell a company’s products or services in a designated geographic area
Franchisee: the person or group of people who have received permission from a parent company to sell its products or services
Franchisor: the parent company that grants permission to a person or group to sell its products or services
FRANCHISE
Average McDonald’s restaurant generates $2.5 million in sales annually
75% of restaurants worldwide are owned by franchisees To become a franchisee
Potential franchisees must have liquid assets of at least $750,000
Expect to pay between $1M - $2M in start up costs based on Geography and size of the restaurant Type of kitchen equipment Signage and décor Landscaping
40% of start-up costs paid in cash up front, rest can be financed
$45,000 franchise fee Monthly service fee of 4% of gross sales Pay monthly rent to corporate (approx. 8.5%)
MCDONALD’S
Pros: Name brand recognition Established method of doing business Access to centralized advertising Professional help in startup/training
Cons: High startup costs in purchasing rights to use the
business name Must follow corporate standards
FRANCHISE
Extractors: A business that grows products or takes raw materials from nature
Producers: A business that gathers raw products in their natural state
Processors: Businesses that change natural materials (raw goods) into a more finished form for manufacturers to process further i.e. paper mills, oil refineries, steel mills, etc.
OTHER TYPES OF BUSINESSES
Manufacturers: A business that takes an extractor’s products or raw materials and changes them into a form that consumers can use Industrial production i.e. General Motors, GE, Dell, Intel
Service Firms: A business that does things for you instead of making products Intangible goods i.e. hospitality, banking, legal, logistics/delivery
OTHER TYPES OF BUSINESSES
Distributor: Wholesaler
A middle firm that assists with distribution activities between businesses
The sale of goods to anyone other than a standard consumer Often sold in bulk/at a discount and not typically a name
consumers would recognize McLane Company
HQ in Temple, TX $47 Billion 2015 revenues 20,545 employees 39 grocery and foodservice distribution centers across the country Proves grocery and foodservices to convenience stores, drug stores,
restaurants
Retailer A business that sells directly to the consumer Purchases can be made in-store or on-line
HEB, Gap, Macy’s, Best Buy, Barnes & Noble
OTHER TYPES OF BUSINESSES
EXAMPLE OF PROCESS FLOW
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