Business Ownership “Own it Your Way”
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Transcript of Business Ownership “Own it Your Way”
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
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 manageTypes of businesses operating as a sole
proprietorshipHome based operationsService businessesRetail businessesHome renovation businesses
Easy to avoid complicated legal issuesExceptions: Permits & Licenses
Sole Proprietorships
Financial ConsiderationsTypically do not need a lot of capitalMake use of personal funds firstSeeks loans from family members & friendsSeeks loans from banks & venture
capitalistsTaxed on business owners personal income
tax returns (filed annually)Videos
Partnerships
Businesses owned by two or more peopleShould limit partnership to no more than 5
to 7 peopleFormed to combine strengths of partners
to run a businessCapitalExperienceAbilities 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 businessExample: 60 / 40 partnership
Limited lifeTaxed 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 ownersTreated as a person in terms of:
Legal rightsDutiesPowers
Corporations
Corporations can:Borrow money or loan moneyBuy & sell goodsMake contractsSue or be suedPerform business activitiesHave an unlimited life
Corporations
OwnershipStock HoldersLimited 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 publicExpenses, sales, income, debts, assets,
etc…Subject to double taxation
Close Corporations
Shares are held privatelyTypically is not required to disclose
finances to the publicSubject to double taxation
Firms profits Investors dividends
“S” Corporations
A private corporation Taxed as individuals in a partnershipRequires less than 75 share holdersMust operate on a calendar year basisSubject 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 membersEnjoy 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
Franchises
A method of distributing recognized goods through & services through a legal agreement between two partiesFranchisor: The seller or parent companyFranchisee: 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