TYPES OF BUSINESS

OWNERSHIP
 ACADEMIC PREPARATION

• To take business classes in high school

• To go to college and get a degree in business
• Co-oping or Internship
• Attending workshops, seminars, trade shows
 WHAT IS AN ENTREPRENEUR?

• a person who organizes and operates a business or

businesses, taking on greater than normal financial risks
• is an individual who creates a new business, bearing
most of the risks and enjoying most of the rewards
• is commonly seen as an innovator, a source of new
ideas, goods, services, and business/or procedures.
• Entrepreneurs need to understand the advantages and
disadvantages of various types of businesses so that they can
choose the one that best suits their needs.
 SOLE PROPRIETORSHIP

• The easiest and most popular form of business ownership is

the sole proprietorship.

sole
soleproprietorship
proprietorship
aabusiness
businessthat
thatisisowned
ownedand
andoperated
operated
by
byone
oneperson
person
 SOLE PROPRIETORSHIP

• The owner of a sole proprietorship:

receives the profits,

incurs any losses, and
is liable for the debts of the business.
 SOLE PROPRIETORSHIP

• In a sole proprietorship the owner must decide how much

liability protection he or she needs.

liability
liabilityprotection
protection
insurance
insuranceagainst
againstthe
thedebts
debtsand
and
actions
actionsofofaabusiness
business
 ADVANTAGES

• Sole proprietorship is easy and inexpensive to create.

The owner has complete authority over all business activities.

It is the least regulated form of business ownership.

The business pays no taxes; income is taxed at the personal rate of the owner.
 DISADVANTAGES

The owner has unlimited liability.

Raising capital is more difficult.

The business is totally reliant on the skills and abilities of the owner.

The death of owner dissolves the business unless

there is a will to the contrary.
 DISADVANTAGES

• The biggest disadvantage of a sole proprietorship is financial.

• In this form of business ownership, the owner has unlimited liability.

unlimited
unlimitedliability
liability
full
fullresponsibility
responsibilityfor
forall
alldebts
debtsand
and
actions
actionsofofaabusiness
business
 PARTNERSHIP

• A partnership draws on the skills, knowledge, and financial resources of

more than one person.

partnership
partnership
ananunincorporated
unincorporatedbusiness
businesswith
withtwo
two
orormore owners who share
more owners who share the the
decisions,
decisions,assets,
assets,liabilities,
liabilities,and
andprofits
profits
 PARTNERSHIP

General vs Limited

The law requires that all general

generalpartner
partner
partnerships have at least one a participant in a partnership who has
a participant in a partnership who has
general partner. unlimited personal liability and takes full
unlimited personal liability and takes full
responsibility for managing the business
A partnership may be set up so responsibility for managing the business
that all of the partners are
general partners.
 PARTNERSHIP

• Some partnerships include a limited partner.

limited
limitedpartner
partner
aapartner
partnerinina abusiness
businesswhose
whoseliability
liability
isislimited
limited to his or her investment;a a
to his or her investment;
limited
limitedpartner
partnercannot
cannotbebeactively
actively
involved in managing the business
involved in managing the business
 PARTNERSHIP

Partnerships are inexpensive to create.

General partners have complete control.

Partners can share ideas.

 PARTNERSHIP

It is difficult to dissolve one partner’s interest without

dissolving the partnership.

There may be personality conflicts.

Partners can be held liable for each others’ actions.

 CORPORATIONS

In a corporation, the owners of the business are protected from

liability for the actions of the company.

There are three types of corporations:

•C-Corporation
•Subchapter S Corporation
•Nonprofit Corporation corporation
corporation
a abusiness
businessthat
thatisisregistered
registeredby bya astate
state
and
and operates apart from its owners;itit
operates apart from its owners;
issues
issuesshares
sharesofofstock
stockand
andlives
livesonon
after the owners have sold
after the owners have sold their their
interest
interestororpassed
passedaway away
 C- CORPORATIONS

• A C-corporation is the most common corporate form.

C-corporation
C-corporation
ananentity
entitythat
thatpays
paystaxes
taxesononearnings;
earnings;
itsitsshareholders pay taxes as well
shareholders pay taxes as well

• C-Corporations: In smaller corporations, the founders

generally are the major shareholders.

shareholders
shareholders
the
theowners
ownersofofa acorporation
corporation
C-CORPORATIONS

ADVANTAGES
status

limited liability

ability to raise investment money

perpetual existence

employee benefits

tax advantages
 C-CORPORATIONS

ADVANTAGES

Corporate shareholders have limited liability, but some banks require

officers to personally guarantee the debts of the company.

limited
limitedliability
liability
partial
partialresponsibility
responsibilityofofa acorporate
corporate
shareholder; he or she is responsible
shareholder; he or she is responsible
only
onlyup
uptotothe
theamount
amountofofhis hisororher
her
individual investment
individual investment
C-CORPORATIONS

DISADVANTAGES
expensive to set up

income more heavily taxed

subject to double taxation on income

pays taxes on profits

stockholders taxed on dividends

 S- CORPORATIONS

• Avoid double taxation with an

S-corporation
S-corporation
AAcorporation
corporationtaxed
taxedlike
likea apartnership
partnership
 S- CORPORATIONS

• Advantages
• Profits are only taxed once at the shareholder’s personal tax rate.
• The S-Corporation in not a taxpaying entity
• Disadvantages
• Can have no more than 75 stockholders
• Can have only one class of stock
• Often restaurants are S-Corporations. If the business produces enough
cash, this form works
• If the business shoes a large taxable profit but has not generated enough
cash to cover the taxes, the owners must pay the taxes out of their
personal earnings
 NON-PROFIT CORPORATIONS

• A nonprofit corporation must fall within one of four categories:

• religion
• charity
• public benefit
• mutual benefit nonprofit
nonprofitcorporation
corporation
aalegal
legalentity
entitythat
thatmakes
makesmoney
moneyforfor
reasons other than the owner’s profit;
reasons other than the owner’s profit;
ititcan
canmake
makea aprofit,
profit,but
butthe
theprofit
profit
must remain within the company
must remain within the company
 LIMITED LIABILITY COMPANY

• There are many benefits to forming a limited liability company (LLC).

limited
limitedliability
liabilitycompany
company(LLC)
(LLC)
a acompany
companywhose
whoseowners
ownersand
and
managers
managers have limited liabilityand
have limited liability and
some
sometax
taxbenefits,
benefits,but
butwhich
whichavoids
avoids
some restrictions associated with
some restrictions associated with
Subchapter
SubchapterSScorporations
corporations
 LIMITED LIABILITY COMPANY

• LLC is simpler to set up than a corporation

• LLC allows for the flexibility of a partnership structure
• LLC protects its owners with the limited liability of a
corporation, its members are not liable for the company’s
debts.
• LLC is not subject to double taxation. Provides the pass-
through tax advantages of partnership. Profits are taxed
personally, and shareholders are taxed only once.
 CORPORATIONS

• Before deciding on a legal form, ask yourself key questions

about:
Making the Decision

your skills willingness to assume liability

access to capital level of control wanted
expenses length of time you expect to own the
business
 FRANCHISE

• Legal agreement that gives an individual a legal right to

market a company’s product or services in a particular area
• Operating Costs
• Initial franchise fee – right to run business
• Start-up costs – costs to rent facility, equipment costs, inventory
• Royalty fees – weekly or monthly payments to owner to seller of
franchise
• Advertising fees – fees paid to support advertising of franchise as a
whole
 ADVANTAGES OF FRANCHISE

• Have an established product or service

• Franchisors offer management, technical, and other assistance
• Equipment and supplies may be less expensive (get better
contract deals)
• Guarantee of consistency attracts customers
 DISADVANTAGES OF FRANCHISE

• Can cost a lot of money

• Don’t get as much of profits
• Less freedom to make decisions
• Dependent on performance of other franchises
• Franchisor my terminate the franchise agreement or not renew
it
 WHAT IS SCARCITY?

• There are limited resources and unlimited wants and needs in

our economy – forces us to have to make choices
• Resources of a business:
• Land – physical property owned
• Labor – people working
• Capital – money and resources used to make a product (could be buildings,
equipment, etc.)
• Entrepreurship – people owning their own business
 ADVANTAGES TO BUYING AN
EXISTING BUSINESS
• The business already has customers, suppliers, and procedures
• The seller may train the new owner
• There are prior records of revenues, expenses and profits.
• May be easier to get financing (less risk for the bank)
 DISADVANTAGES OF BUYING AN
EXISTING BUSINESS.
• The business may not be making a profit.
• You may inherit serious problems. (poor reputation, trouble
with suppliers, etc.)
• Capital is required
ADVANTAGES OF ENTERING A FAMILY
BUSINESS?
• Pride and sense of mission working with family
• Some enjoy working with relatives.
• Like keeping the business in the family
DISADVANTAGES OF WORKING WITH
FAMILY
• Senior management positions – held by family members
regardless of their ability
• May be hard to retain good employees who are not members
of family
• Family politics may affect decision-making
• Sometimes distinction between family-life and business is
blurred