Business Ownership“Own it Your Way”

Mr. Johnson

Objectives

Identify the 4 Common types of business ownership

Discover the characteristics of each type of business ownership

Discuss Business start – up strategies

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

Four Types of Business Ownership

Sole Proprietorship

Partnership

Corporation

Hybrid Structures

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

Sole Proprietorships

Very easy to manageTypes of businesses operating as a sole

proprietorshipHome based operationsService businessesRetail businessesHome renovation businesses

Easy to avoid complicated legal issuesExceptions: Permits & Licenses

Sole Proprietorships

Financial ConsiderationsTypically do not need a lot of capitalMake use of personal funds firstSeeks loans from family members & friendsSeeks loans from banks & venture

capitalistsTaxed on business owners personal income

tax returns (filed annually)Videos

Partnerships

Businesses owned by two or more peopleShould limit partnership to no more than 5

to 7 peopleFormed to combine strengths of partners

to run a businessCapitalExperienceAbilities or Skills

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 businessExample: 60 / 40 partnership

Limited lifeTaxed on Personal income tax returns

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

Corporations

Defined by the Supreme Court as an “artificial being, invisible, intangible, & existing only in the contemplation of the law”

Functions independently from its ownersTreated as a person in terms of:

Legal rightsDutiesPowers

Corporations

Corporations can:Borrow money or loan moneyBuy & sell goodsMake contractsSue or be suedPerform business activitiesHave an unlimited life

Corporations

OwnershipStock HoldersLimited 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

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

Types of Corporations

Open – Public Corporations

Close Corporations

“S” Corporations

Non Profit Corporations

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 publicExpenses, sales, income, debts, assets,

etc…Subject to double taxation

Close Corporations

Shares are held privatelyTypically is not required to disclose

finances to the publicSubject to double taxation

Firms profits Investors dividends

“S” Corporations

A private corporation Taxed as individuals in a partnershipRequires less than 75 share holdersMust operate on a calendar year basisSubject to numerous government

regulations

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

Hybrids

Owners are called membersEnjoy advantages of corporations in

relation to limited liability of owners assets

Enjoy the advantages of sole proprietorships & partnerships in relation to control, etc…

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

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

Objective C

Start-Up Business Strategies

Franchises

A method of distributing recognized goods through & services through a legal agreement between two partiesFranchisor: The seller or parent companyFranchisee: The buyer

Desirable as you are buying into a recognizable product / service

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

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

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