Business Ownership

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Business OwnershipOwn it Your Way

• Mr. Johnson

2
Objectives

• Identify the 4 Common types of business ownership
• Discover the characteristics of each type of
  business ownership
• Discuss Business start up strategies

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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

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Four Types of Business Ownership

• Sole Proprietorship
• Partnership
• Corporation
• Hybrid Structures

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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

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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

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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

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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

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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

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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 doesnt trust the
  product or service but wants to help
• Financial partner is excluded from day to day
  operations of firm
• Requires extensive gov
• Videos

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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

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Corporations

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

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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

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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

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Types of Corporations

• Open Public Corporations
• Close Corporations
• S Corporations
• Non Profit Corporations

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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

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Close Corporations

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

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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

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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

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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

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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

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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

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Objective C

• Start-Up Business Strategies

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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

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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

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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

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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