forms of business ownership

1. proprietorship forms of business ownership partnership corporation

2. proprietorship [ characteristics] • DEFINITION: A business owned and managed by one person, also known as a sole proprietorship. • PROPRIETOR: The owner/manager of a business who performs day-to-day tasks that make a business successful with the help of hire employees. • WORTH NOTING: • Most common form of business organization • Over 16 million proprietorships in the United States • 30% of proprietorships are part-time businesses run out an office or home • Appealing to stay-at-home parents

3. proprietorship [ advantages ] • Owner is the boss • Owner receives all profits • Owner personally knows employees and customers • Owner can make decisions (and quickly) • Owner is free from red tape • Pay less income tax than a corporation

4. proprietorship [ disadvantages ] • Owner may lack necessary skills and abilities • Owner may lack funds • Owner bears all losses • Assumes a great deal of risk • Illness or death may close the business

5. proprietorship [ criteria ] The type of business that can be operated suitably as a proprietorship is one that: is small enough to be managed by the proprietor or a few people hired by the proprietor. does not require a large amount of capital. is primarily concerned with providing personal services. is the type that sells merchandise/services on a small scale.

6. proprietorship examples PRODUCTS Newspapers/Magazine Food Stands Family Restaurants Flower Shops Small Grocery Stores Web-Based Businesses SERVICES Dentists Accountants Landscape Gardeners Carpenters/Painters Barbers/Hair Stylists Website Developers Graphic Designers Day Care Providers

7. [ characteristics] • DEFINITION: A business owned by two or more people. • WORTH NOTING: • Partners must clearly agree upon each person’s responsibilities in order to be successful • Can be classified in a variety of ways • Silent or secret partners • Critical to prepare a balance sheet • Shows assets, liabilities, and capital at the start of the business partnership

8. [ advantages ] • Pooled skills and abilities • Increased sources of capital • For equipment, inventory, property, etc. • Improved credit • Contribution of goodwill • Increased concern in business management • Lower tax burden • Pay personal income taxes vs. tax on profits • Reduction in competition • Operating expense efficiency • Advertising, supplies, etc. partnership

9. [ disadvantages ] • Unlimited financial liability • Disagreement among partners • Partners bound by contracts • Uncertainty of partnership longevity • Unexpected death • Limited capital sources • “Too many cooks in the kitchen” • Unsatisfactory division of profits • Usually according to contributions, specified in contract • Labor, expertise, capital • Difficult to withdraw partnership

10. [ criteria] • The type of business that can be operated suitably as a partnership is one that: • furnishes more than one kind of product or service. • Car dealer (sales/service departments) • has more than one location and/or operates long hours. •  Restaurants • could also be a partnership, especially those that offer professional services. •  Lawyers, doctors, accountants, etc. partnership

11. If you were starting XYZ business, would you form a proprietorship or partnership? Why?

12. [ corporations ]

13. [ characteristics ] • CORPORATION: A business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners. • WORTH NOTING: • Few in number, large in size • Smaller corporations do exist • Often begin as small businesses • Corporate sales of goods/services estimated to be 17 times greater than sales from proprietorships and 16 times greater than sales from partnerships corporation

14. [ characteristics ] • INCORPORATION: Forming a new business • CHARTER:Official document through which a state grants the power to operate as a corporation • A CORPORATION IS… • In a sense, an artificial person created by the laws of the state. corporation

15. [ organization ] • Naming the business • Corporation, Corp., Incorporated, Inc. • Clearly describe purpose of the business •  To operate a retail food business • Invest in the business • Issue stock • Pay incorporation costs/tax • Prepare a balance sheet • Determine voting rights of stockholders corporation

16. [ advantages ] • Several sources of capital, specifically sales of shares • Limited liability of stockholders – initial investment • More permanent type of organization than partnership/proprietorship • Easy to transfer ownership – selling stock corporation

17. [ disadvantages ] • Subject to numerous taxes • Filing fee • State tax based on profits • Federal income tax • Dividends are taxed twice • Extensive government regulations • Must publish financial data • Time-consuming and expensive responsibilities • Record-keeping of stockholders (1,000’s) • Charter restrictions • New charter for diversification corporation

18. franchise [ characteristics ] • DEFINITION: A legal agreement that gives an individual the right to market a company’s products or services in a particular area. • FRANCHISEE: The person who purchases a franchise agreement. • FRANCHISOR:The person or company that offers a franchise for purchase. • WORTH NOTING: • More than 500k people in the U.S. own franchises, and that number is growing • Franchising opportunities are available in virtually every field • Motels, pet stores, video outlets, etc. • The U.S. Dept. of Commerce lists more than 1,400 franchise opportunities by category

19. franchise [ operating costs ] • INITIAL FRANCHISE FEE: • Fee the franchise owner (franchisee) pays in return for the right to run the franchise. • Can start as low as a few thousand dollars and can exceed hundreds of thousands of dollars. • START-UP COSTS: • Costs associated with beginning a business. • Renting/purchasing a facility • Renting/purchasing equipment • Purchasing inventory • ROYALTY FEES: • Weekly or monthly payments made by the owner (franchisee) of the franchise to the seller of the franchise (franchisor). • ADVERTISING FEES: • Fees paid to support television, magazine, or other advertising of the franchise as a whole.

20. franchise [ advantages ] • Entrepreneur is provided with an established product or service, which levels the playing field • Franchisors offer management, technical, and other assistance • On-site training • Start-up, daily operations • Tips on crisis management • Equipment and supplies can be less expensive • Large quantity purchase discounts from franchisor • Guarantee of consistency attracts customers • Brand recognition

21. franchise [ disadvantages ] • Franchises can cost a lot of money and cut down on profits • Initial capital/investment is high • Some profits are returned to franchisor as royalties • Owners of franchises have less freedom to make decisions than other entrepreneurs • Set product/service line, prices, etc. • Franchises are dependent on the performance of other franchisees in the chain • Benefit from success of other franchisees, but bad reputations can cause customer opinions and satisfaction to decline • Franchisor can terminate the franchise agreement • Failing to pay royalty fees or inability to meet conditions may result in loss of franchise and investment/non-renewal of contract agreement

22. franchise [ franchise evaluation ] • Provide a background of franchise, then answer these questions: • What are the costs and royalty fees associated with the franchise? • Will I be guaranteed an exclusive territory for the duration of the franchise term, or can the franchisor sell additional franchises in the territory? • How profitable have other franchises in the area been? What do other franchisees think of the franchisor? • How long has the franchisor been in business? How profitable is the franchisor? • What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection? • Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise? • What happens if I want to cancel the franchise agreement? • Is becoming a franchisee of this business a good opportunity? Why or why not?

23. franchise [ franchise evaluation ] www.franchising.com www.franchise.com www.franchise.org http://www.census.gov/econ/census/franchising/ http://www.entrepreneur.com/franchises/index.html#