Business Structures

1. Business Structures

2. Business Ownership Opportunities • If you were to start your own business what would it be? • How would you enter a business? • Four ways: • Purchase an existing business • Take over a family business • Start a new business • Purchase a franchise • What organizational form will it take?

3. Forms of Business Organization • Sole Proprietorship- A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business. • Partnership- A business with two or more owners who share the firm's profits and losses. • Corporation- A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. • Franchise- A legal agreement to sell a parent company’s product or service in a geographic area.

4. Sole Proprietorship Advantages Disadvantages • All business decisions are the owner’s • Low start-up costs • All profits go to the owner • Greater freedom • Very little government control (keep accurate tax and employee records) • Income taxes once • Unlimited liability- personally responsible for any losses. • Long working hours • Difficult to obtain financial capital • All business decisions and risks are the owner’s • Limited life span

5. Partnership Advantages Disadvantages • Easy to form • Low start-up costs • Divided liability • Easier to obtain financial capital • Opportunity to gain complementary skills • Income taxes once • Unlimited liability (in a general partnership) • Divided authority • Divided profits • Can be difficult to find the right partner • Potential disagreements among partners • Limited life span

6. Corporation Advantages Disadvantages • Limited liability • Specialized managerial functions • Easier to raise financial capital • Perpetual existence • Freely transferable shares of stock • Greater government regulation • Expensive to organize • Double taxation • Not easily dissolved • A lot of paperwork • Extra costs for lawyers, fees, etc.

7. Corporations • Charter- a government document that gives permission to create a corporation. • Stockholders- purchases share or shares of ownership in a corporation. • Public vs. Private • Public – is a company who offers its securities for sale to the general public. • Private- are owned by a relatively small number of shareholders who owns stocks that are not traded publicly, many family-owned. • “S” Corporation-is treated as a partnership and not as a corporation for tax purposes. It requires Articles of Incorporation which outlines the primary rules governing the management of a “S” corporation.

8. Franchise Advantages Disadvantages • Proven idea • Brand name • Support from franchisor • Exclusive rights • Established relationships with suppliers • Financing may be easier than starting from scratch • Restrictions from franchisor • Royalty fees – a percent of the gross profits • May be expensive to own and operate • Stiff penalties from franchisor if business is sold or closed • Added costs for legal and accounting services • Loss of individuality

9. Profit vs. Nonprofit • Profit organizations use resources to produce goods and services in hopes of earning a profit for their owners. • Ford Motor Company • Nonprofit organizations work in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners. • American Red Cross

10. Nonprofit Organizations • Community or civic organizations-ex. Churches, Schools • Cooperatives- Consumer, Service, Producer – Bulk Food stores, Credit Unions, Farmers Markets • Government-helping to make sure the economy runs smoothly while providing goods and services. • Other Organizations • Labor Unions- UAW, an economic institution that represents an organized group of workers (by industry or by type of worker regardless of the industry) to negotiate with management by means of collective bargaining. • Professional Organizations-AMA • Business Organization- Chamber of Commerce, BBB • Households