Business
Ownership
How to Form a Business
MAJOR FORMS of OWNERSHIP
• Sole Proprietorship -- A business owned, and
usually managed, by one person.
• Partnership -- Two or more people legally agree to
become co-owners of a business.
• Corporation -- A legal entity with authority to act
and have liability apart from its owners.
ADVANTAGES & DISADVANTAGES of
SOLE PROPRIETORSHIP
Advantages
Disadvantages
1)
Unlimited Liability -- Any debts
or damages incurred by the
business are your debts, even if
it means selling your home, car
or anything else.
1)
Ease of starting and ending
the business
2)
Being your own boss
3)
Pride of ownership
2)
Limited financial resources
4)
Leaving a legacy
3)
Management difficulties
5)
Retention of company profit
4)
Overwhelming time commitment
6)
No special taxes
5)
Few fringe benefits
6)
Limited growth
7)
Limited life span
MAJOR TYPES of PARTNERSHIPS
• General Partnership -- All owners share in
operating the business and in assuming liability for
the business’s debts.
• Limited Partnership -A partnership with one or
more general partners and
one or more limited
partners.
TYPES OF PARTNERS
• General Partner -- An owner (partner) who has
unlimited liability and is active in managing the firm.
• Limited Partner -- An owner who invests money in
the business, but enjoys limited liability. Limited
Liability means that liability for the debts of the
business is limited to the amount the limited partner
puts into the company; personal assets are not at risk.
OTHER FORMS of PARTNERSHIPS
• Master Limited Partnership (MLP)-- A
partnership that looks much like a corporation, but is
taxed like a partnership and thus avoids the
corporate income tax.
• Limited Liability Partnership (LLP)-- Limits
partners’ risk of losing their personal assets to the
outcomes of only their own acts and omissions and
those of people under their supervision.
ADVANTAGES & DISADVANTAGES of
PARTNERSHIPS
Advantages
• More financial resources
• Shared management and
pooled/complementary
skills and knowledge
• Longer survival
Disadvantages
•
Unlimited liability
•
Division of profits
•
Disagreements among
partners
•
Difficult to terminate
PICKING YOUR PARTNER
There is no such thing as a perfect partner but
ask these questions when you try to find your
best match:
• Do you share the same goals?
• Do you share the same vision for the company?
• What skills does he/she have? Are yours the same?
• What can he/she bring to the business?
• What type of decision maker is he/she?
• Do you trust each other?
• How does he/she problem solve?
MERGERS and ACQUISITIONS
• Merger -- The result of two firms joining to form one
company.
• Acquisition -One company’s
purchase of the
property and
obligations of
another company.
TYPES of MERGERS
• Vertical Merger -- The joining of two firms in
different stages of related businesses.
• Horizontal Merger -- The joining of two firms in the
same.
• Conglomerate Merger -- The joining of firms in
completely unrelated industries.
FRANCHISING
• Franchise Agreement -- An arrangement whereby
someone with a good idea for a business (franchisor)
sells the rights to use the business name and sell a
product or service (franchise) to others (franchisees) in
a given territory.
ADVANTAGES & DISADVANTAGES of
FRANCHISING
ADVANTAGES
DISADVANTAGWS
1. Management and
marketing assistance
1. Large start-up costs
2. Personal ownership
3. Nationally recognized
name
4. Financial advice and
assistance
5. Lower failure rate
2. Shared profit
3. Management regulation
4. Coattail effects
5. Restrictions on selling
6. Fraudulent franchisors
REVIEW
1. Why would unlimited liability be considered a
major drawback to sole proprietorships?
2. What’s the difference between a limited
partner and a general partner?
3. What are some of the advantages and
disadvantages of partnerships?
Entrepreneurship
and
Starting a
Small Business
WHAT is ENTREPRENEURSHIP?
• Entrepreneurship -Accepting the risk of
starting and running a
business.
WHY TAKE the RISK?
• Opportunity
• Profit
• Independence
• Challenge
WHAT DOES IT TAKE to be an
ENTREPRENEUR?
• Self-directed
• Self-nurturing
• Action-oriented
• Highly energetic
• Tolerant of uncertainty
HOME-BASED BUSINESS GROWTH
• Computer technology has leveled the playing field.
• Corporate downsizing has led many to venture on
their own.
• Social attitudes have
changed.
HOME-BASED BUSINESS ISN’T EASY
• Getting new customers is difficult.
• Managing your time requires self-discipline.
• Work and family tasks are sometimes not
separated.
• Government ordinances may restrict your
business.
• Homeowner’s insurance may not cover
business-related claims.
ADVANTAGES & DISADVANTAGES of
HOME-BASED BUSINESSES
ADVANTAGES
•
Ability to start your business
immediately
•
Minimal start-up capital needed
•
No rent or excessive set-up
charges
DISADVANTAGES
•
Difficult to establish work habits
•
Limited support system
•
Isolation
•
Work space may be limited
•
Clients may be uncomfortable
coming to your home
•
Comfortable working conditions
•
Reduced wardrobe expenses
•
No commuting
•
Zoning restrictions
•
Tax benefits
•
•
Elimination of office politics
Success is based 100% on your
efforts
•
Low risk for trial and error
THINK YOU’RE READY to WORK from
HOME?
Yes?
If I don’t know the answer, I can figure it out.
I’m hardworking, self-directed and disciplined.
I’m organized and can multitask.
I don’t mind working long hours or weekends.
I regularly set goals and measure progress.
I’m happy being alone.
I’m an excellent communicator.
I can create relationships with people I’ve never met.
I’m productive on my own.
My family and friends don’t expect me to be available
when I’m working at home.
Source: Entrepreneur, June 2010.
No?
ONLINE BUSINESS
• Online sales reached
$262 billion in 2013,
about 8% of all retail
sales.
• All retail sales were up
2.5% in 2013. However,
online retail sales grew
13%.
SMALL BUSINESSES
• Small Business -Independently owned and
operated, not dominant in its
field of operation and meets
certain standards of size.
• Businesses are “small” in
relation to other businesses
in their industries.
ADVANTAGES of SMALL OVER
BIG BUSINESS
• More personal customer service.
• The ability to respond quickly to opportunities.
Photo Credit: Elliot Brown
LEARNING ABOUT SMALL BUSINESS
• Learn from Others – Investigate your local
colleges for classes on small business and
entrepreneurship; talk to and work for successful
local entrepreneurs.
• Get Some Experience – Gain three years
experience in the field; then start a part-time small
business.
• Take Over a Successful Firm – Serve as an
apprentice and eventually take over once the owner
steps down.
MAJOR BUSINESS FUNCTIONS
• Planning
• Financing
• Knowing customers
• Managing employees
• Keeping records
BUSINESS PLANS
• Business Plan -- A detailed written statement that
describes the nature of the business, the target
market, the advantages the business will have over
competition, and the resources and owners’
qualifications.
• A business plan forces potential owners to be
specific about what they will offer.
• A business plan is mandatory for talking with
bankers or investors.
SOURCES of CAPITAL
• Personal savings
• Relatives
• Former employers
• Banks & finance companies
• Government agencies
• Angel investors
• Venture capitalists -- Individuals or companies
that invest in new businesses in exchange for partial
ownership.
KNOWING the MARKET
• Market -- Consumers with unsatisfied wants and
needs who have both resources and willingness to
buy.
• Set out to fill the market’s needs by offering top
quality and great service at a fair price.
• One of the great advantages of small businesses
is the ability to know the market and quickly
adapt to market needs.
MANAGING EMPLOYEES
•
Hiring, training and motivating employees is
critical.
•
Employees of small companies are often more
satisfied with their jobs – they feel challenged
and respected.
•
Entrepreneurs best serve themselves and the
business if they recruit and groom employees
for management positions.
ACCOUNTING ASSISTANCE
• Computers simplify the process by helping with
inventory control, customer records and payroll.
• A good accountant can help in:
-
Deciding whether to buy or lease equipment.
-
Deciding whether to own or rent a building.
-
Tax planning.
-
Financial forecasting.
-
Choosing sources of financing.
-
Writing requests for funds.
REVIEW
• Why are people willing to take the risks of
entrepreneurship?
• What are major business functions?