Title: Business Organizations
1Business Organizations
- 1. Sole Proprietorship - A business owned and
operated by one person. - Oldest, simplest, most common type
- Who owns SPs? (Internet advantages)
- Advantages of Sole Proprietorships
- Ease of start up
- Few regulations
- Full control
- Exclusive right to all profits
2Sole Proprietorships
- 1. Easy Start Up
- Require small amount of money
- Can set up in a short amount of time
- 2. Few Regulations
- Business License
- Site Permit (zoning laws)
- Register business name
- Obtain federal/state tax ID
3Sole Proprietorships
- 3. Full Control - You maintain complete
control and can make fast and flexible decisions. - Minimal paperwork, meetings, depends on YOU!
- 4. Profit - The owner (YOU) keeps all the
profits.
4Sole Proprietorships
- Disadvantages
- Unlimited Personal Liability
- Limited Access to Resources
- Lack of Permanence
5Disadvantages of S.P.
- Unlimited Liability
- YOU are personally responsible for all business
debts. - YOU can also be sued personally for anything if
the business is taken to court.
6Disadvantages Sole Proprietorships
- 2. Limited Access to Resources
- - Sole responsibility - YOU are
responsible for ALL aspects of running your
business. But are you an expert at all aspects of
running a business? - - Limited Growth Potential Difficult to
expand or improve the business because banks are
reluctant to give loans. - CollateralAnything of value you pledge as
security for a loan.
7Disadvantages of SP
- 3. Lack of Longevity - The length of a firms
life or the amount of time the business operates. - Ex. Your health / lifespan
- Ex. High turnover
- Ex. You lose interest in the business
- Ex. Your competence
8Partnerships
- PartnershipA business that is owned and
controlled by two or more people. - Ex. Small retail stores, restaurants, doctors,
lawyers - GeneralPartners enjoy equal decision making
authority. - LimitedPartners who provide capital() but do
not play an active role in running the company.
Liability is limited between partners. - Limited Liability Partnership similar to
general except partners not responsible for each
others mistakes (limited liability between
partners)
9Advantages of Partnerships
- Advantages of Partnerships
- Ease of start-up
- Financial Advantages
- Specialization / Shared decision making
10Advantages of Partnerships
- 1. Easy start up
- Few government regulations
- Costs tend to be low
- Partners usually develop a partnership contract
but not required. Can distribute profits and
responsibilities by choice. -
11Advantages of Partnerships
- 2. Financial Advantages
- Shared Assets Partners can pool assets to
start the business or make capital purchases. - Improved ability to raise capital
Banks are more likely to lend to partnerships
because they have an increased amount of
collateral. - Shared Losses - The sharing of losses
may enable a partnership to survive a situation
that might cause a sole proprietorship to fail.
12Partnerships - Advantages
- 3. Shared Decision Making
- Specialization Specific business duties can
be assigned to different partners based on
expertise and individual talents. - Ex. One good in salesother good in accounting
- Minimize mistakes - Partners can minimize
mistakes by consulting with each other. - Flexibility Can go on vacation, illness
13Disadvantages of Partnerships
- 1. Unlimited Liability - Each partner is
personally responsible for debts incurred by the
business. General partners can lose everything
they own! - If one partner refuses or is unable to pay for
his share, then the other partners are still
liable for the total debt. - Other partners can lose based on the mistakes of
one
14Disadvantages of Partnerships
- 2. Potential Conflicts Official partnership
agreements deal with ownership percentages and
technicalities such as profit and loss. - However, other factors play an even bigger
role - Work habits, personalities, management styles,
ethics, etc
15Disadvantages of Partnerships
- 3. Lack of Permanence - Life of the business is
dependent on the willingness and ability of the
partners to continue to work together. - One partner cannot remain (die/illness) or
decides that they no longer want to work in the
partnership. What are the options? - Find a new partner, buy the partner out, or
close the business.
16Franchises
- Franchise - A semi-independent business that pays
fees to a parent company. In return, the business
is granted the exclusive right to sell a certain
product or service in a given area. - Examples Subway, Jiffy Lube, McDonalds, Palm
Beach Tan, Home Again Senior Care
17Franchise Advantages
- Advantages
- Management training and support
- Standardized quality
- National advertising programs
- Financial assistance
- Centralized buying power
18Franchise Disadvantages
- Disadvantages
- High franchising fees and royalties
- Strict operating standards
- Purchasing restrictions
- Limited product line
19Corporations
- Corporations Companies that are formed as
legally distinct from their owners and are
treated as if they were individuals. - Can Hire workers, make contracts, pay taxes, sue
and be sued, make sell products.
20Forming a Corporation
- 1. Must apply for a state license known as the
articles of incorporation. - Includes name and purpose of corp.
- Address and headquarters
- Amount of it expects to raise
- Names and addresses of officers
- Length of time expected to exist
- License granted is called corporate charter
21Corporate Structure
- Structure
- Owners/Shareholders
- Board of Directors
- Corporate Officers
- Vice Presidents
- Department Heads
- Employees
22Corporate Finances
- Stock A certificate of ownership of the firm.
- Stockholders Individuals that own shares
- Shares - Portions of stock (certificates) issued.
- Dividends - Profits paid to shareholders.
- Common Stock - Allowed to vote. May or may not
offer dividends - Preferred Stock - Guaranteed dividends paid
before common stock. No voting rights
23Corporate Finances
- Corporate BondCertificate issued by a
corporation in exchange for money borrowed. - PrincipalThe actual amount of money borrowed.
Ex. Buy 10,000 _at_5 interest - Principal10,000 X 5 500 per year income
- InterestAmount borrower must pay for the use of
the principal.
24Advantages of Corporations
- Advantages to stockholders
- 1. Limited Liability Can lose only the amount
they invested in the business. No personal assets
can be touched. - 2. Transferable - Can sell their shares at any
time
25Advantages of Corporations
- Advantages for the Corporation
- 1. Capital can be raised easily (bonds, issuing
shares) - 2. Separation of ownership from management.
- - Owners need no skills. Can hire
experts. - 3. Longevity
- Businesses can live indefinitely
since ownership is transferable and owners are
not running day to day operations.
26Disadvantages of Corporations
- Difficulty and expense of startup-
- Corporate charters involve a
complicated legal process - Double Taxation
Corporation pays taxes on profits
Corporation pays stockholders dividends
Stockholders pay income tax on dividends
27Disadvantages of Corporations
- 3. Loss of control / Slow decision making process
- - Owners have little control of decision
making. Corporate officers (management) and/or
Board of Directors may make decisions in their
own self-interest that do not benefit owners. -
- - Major corporate decisions are delayed by the
voting process and meeting times of the Board of
Directors -
28Disadvantages of Corporations
- 4. Government Regulations
- Have far more and stricter laws
- Example Must file quarterly and annual
earnings reports to the SEC (Securities and
Exchange Commission)
29Limited Liability Corporation LLC
- Advantages
- Limited Liability
- No Double Taxation
- Disadvantages
- Almost none
- Most popular form of small businesses now
-