Business Organizations - PowerPoint PPT Presentation

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Business Organizations

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Business Organizations 1. Sole Proprietorship - A business owned and operated by one person. Oldest, simplest, most common type Who owns SP s? – PowerPoint PPT presentation

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Title: Business Organizations


1
Business 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

2
Sole 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

3
Sole 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.

4
Sole Proprietorships
  • Disadvantages
  • Unlimited Personal Liability
  • Limited Access to Resources
  • Lack of Permanence

5
Disadvantages 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.

6
Disadvantages 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.

7
Disadvantages 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

8
Partnerships
  • 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)

9
Advantages of Partnerships
  • Advantages of Partnerships
  • Ease of start-up
  • Financial Advantages
  • Specialization / Shared decision making

10
Advantages 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.

11
Advantages 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.

12
Partnerships - 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

13
Disadvantages 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

14
Disadvantages 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

15
Disadvantages 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.

16
Franchises
  • 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

17
Franchise Advantages
  • Advantages
  • Management training and support
  • Standardized quality
  • National advertising programs
  • Financial assistance
  • Centralized buying power

18
Franchise Disadvantages
  • Disadvantages
  • High franchising fees and royalties
  • Strict operating standards
  • Purchasing restrictions
  • Limited product line

19
Corporations
  • 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.

20
Forming 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

21
Corporate Structure
  • Structure
  • Owners/Shareholders
  • Board of Directors
  • Corporate Officers
  • Vice Presidents
  • Department Heads
  • Employees

22
Corporate 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

23
Corporate 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.

24
Advantages 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

25
Advantages 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.

26
Disadvantages 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
27
Disadvantages 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

28
Disadvantages 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)

29
Limited Liability Corporation LLC
  • Advantages
  • Limited Liability
  • No Double Taxation
  • Disadvantages
  • Almost none
  • Most popular form of small businesses now
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