Business Ownership “Own it Your Way”

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 manage • Types of businesses operating as a sole proprietorship • Home based operations • Service businesses • Retail businesses • Home renovation businesses • Easy to avoid complicated legal issues • Exceptions: Permits & Licenses

Sole Proprietorships • Financial Considerations • Typically do not need a lot of capital • Make use of personal funds first • Seeks loans from family members & friends • Seeks loans from banks & venture capitalists • Taxed on business owners personal income tax returns (filed annually) • Videos

Partnerships • Businesses owned by two or more people • Should limit partnership to no more than 5 to 7 people • Formed to combine strengths of partners to run a business • Capital • Experience • Abilities 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 business • Example: 60 / 40 partnership • Limited life • Taxed 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 owners • Treated as a person in terms of: • Legal rights • Duties • Powers

Corporations • Corporations can: • Borrow money or loan money • Buy & sell goods • Make contracts • Sue or be sued • Perform business activities • Have an unlimited life

Corporations • Ownership • Stock Holders • Limited 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 public • Expenses, sales, income, debts, assets, etc… • Subject to double taxation

Close Corporations • Shares are held privately • Typically is not required to disclose finances to the public • Subject to double taxation • Firms profits • Investors dividends

“S” Corporations • A private corporation • Taxed as individuals in a partnership • Requires less than 75 share holders • Must operate on a calendar year basis • Subject 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 members • Enjoy 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 parties • Franchisor: The seller or parent company • Franchisee: 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

Business Ownership “Own it Your Way”