Entrepreneurship

Entrepreneurship Delivered in: Islamia University Bahawalpur Presented By: Tasawar Javed

Forms of business • Whenever you think of Business you need to consider Legal issues related to this Business • Government regulations can boost your business as well as it can affect your business • Whenever you have business plan; you must consider which form it will take; either you are going for partnership or sole trader or any other form; will be discussed in this lecture later • You must know on what level your business is; so which form of business will suit in the country you are; or the set of regulations you will follow

Entrepreneurs consideration • Tax consideration • Liability exposure • Start up & future capital requirement • Control • Managerial ability • Business goals • Management succession plan • Cost of formation

Popular forms of Business • Sole Traders • Partnerships • Limited Companies • Franchises

Sole Traders • Business owned by one individual • Simplest form of business to start • All we need is the first customer • Few regulations • No major requirements about accounts and audits • Individual will pay personal taxes • Taxes are calculated on the basis of profit made by business

Sole proprietorship advantages • Simple to create • Least costly form of ownership to begin • Profit incentive • Total decision making authority • No special legal restrictions • Easy to discountinue

Sole Traders disadvantages • Two important Limitations: 1st) Borrowing problems • Cuz lending institutions prefer assets of the business to be placed in legal framework of a company 2nd) Liability • sole trader is personally liable for all the debts of the business, no matter how large • So creditors may look both business assets and proprietor’s assets as well to satisfy their debts • But is it emphasized? • Not really • Bank looks for personal guarantee from the proprietor before giving a loan

Sole Traders disadvantages • Unlimited personal liability • Limited skills and capabilities • Feelings of isolation • Limited access to capital • Lack of continuity of the business

Partnerships • Group of sole traders • They come together; formally or informally to do business • Pool their resources, contribute capital, skills • Face all the advantages and disadvantages • Requires a lot of trust • Formal agreements need to be introduced • Some professions, such as doctors and accountants, are required by law to conduct business as partnerships,

Partnerships • Partnership agreement: • A document that states in writing the terms under which the partners agree to operate the partners agree to operate the partnership and protects each partner’s interest in the business. • A good partnership agreement will guide you through the good times, provide you with a method for handling problems, and serves as the infrastructure for a successful operation. • Generally, a partnership agreement can include the any terms the partner want (unless the are illegal) standard agreement may include following points:

Partnerships • Partnership agreement: • Name of partnership • Purpose of business • Domicile of business • Duration of partnership • Names of the partners and their legal addresses • Contribution of each partner to the business at the creation of the partnership and later • Agreement on how the profits or losses will be distributed • Procedure for expansion through the addition of new partners • Agreement on distribution of assets if the partners dissolve it • Sale of partnership interest • Salaries, draws, and expense accounts for the partner • Absence or disability of one of the partner • Dissolution of partnership • Alternation or modification of the partnership agreement

Partnerships Advantages • Partnership advantages • Easy to establish • Complementary skills • Division of profits • Larger pool of capital • Ability to attract limited partners • General partner (unlimited liability) • Limited partner (not active role in managing) limited liability • Silent partner • Dormant partner • Little government regulations • Flexibility • Taxation

Partnerships • Disadvantage are: • At least one partner has unlimited liability for the debts may be they occurred personally • Partnership is held to cease every time one leaves and 2nd joins • It means the dividing up the assets and liabilities in some way • Partnership agreements covers such issues as capital contributions, division of profit and interest on capital, power to draw money or take remunerations from the business, preparations of accounts and procedures when the partnership is held to cease • Personality and authority conflict • Partners are bound by the law of agency

Limited Partnerships • A partnership composed of at least one general partner and at least one limited partner • In a limited partnership the general partner is treated, under the law, exactly as in a general partnership • Master Limited Partnership • A partnership whose shares are traded on stock exchange, just like a corporation’s

Corporations • Registered in accordance with provisions of the companies Acts is a separate legal entity distinct its owner or shareholders, and its directors or managers • It can enter in contract or SUE or to be Sued • Taxed separately through corporations Tax • Divorce between management and ownership, with a BOD elected by the shareholders to control the day-to-day running of business • The liability of the shareholders is limited by the amount of capital they put into the business • Company has unlimited life and can be sold on to other shareholders • No limit to the number of shareholders • They can attract additional risk capital from banks • A separate legal entity apart from its owners which receives the right to exist from the stat in which it is incorporated

Corporations • Domestic corporations • A corporation doing business in the state in which it is incorporated • Foreign corporations • A corporation doing business in a state other than the one in which it is incorporated • Alien corporations • A corporation formed in another country but doing business in the US • Publicly held corporations • That has a large number of shareholders & and whose stock usually is traded on one the large stock exchange • Closely held corporations • Whose shares are controlled by a relatively small number of people, often family members, relatives, friends, or employees

Corporations • Advantages: • Limited liability • Easier to borrow money • Can raise risk capital through additional shareholders • Can be sold on • Pay corporation tax • Disadvantages • Must comply with companies Acts • Double taxation • Potential loss of control by the founders • Greater regulations • Greater disclosure of information

Franchises • A business in which the owner of the name or method of doing business allows a local operator to ser up a business under that name. • The local operator may be a sole trader or a limited company • Exchange of initial fee • Royalty of sales • Guide lines to run a business • Price and performance standards • Type, size, layout of shop or business, training and other support or controls • Already existing in market and easy to run; • Its well-known business so better chance to successful start up

Franchisee • Advantages: • Business format proved, less risk of failure • Easier to obtain finance than own start-up • Established format, startup should be quicker • Training and support available from franchisor • National branding should help sales • Economies of scale may apply • Disadvantages: • Not really your own idea and creation • Lack of real independence, rules are from franchisor • It could be expensive • Royalties can be high • Brand could be damaged

Franchisor • Advantages: • Way of expanding business quickly • Financing cost shared with franchisees • Franchisees usually highly motivated since their livelihood depends on success • Disadvantages: • British Franchise association rules take time and money to comply with • Loss of some control to franchisees • Franchisees can influences the business • Failure of franchisee can reflect on franchisor • May be obligations to franchisee in the franchise agreements

Thank You!!!! • Q&A

Entrepreneurship