Entrepreneurship Types of Business Ownership

Opportunities for Ownership Take over a family business –Contribute 40% of GNP and ½ of all jobs nationally Buy an existing business –Ray Kroc of McDonald’s fame: bought a hamburger stand from the McDonald brothers –Buy existing business or right to set up a new business based on an existing model (Franchise) Start a business of your own- this is what we will do in Entrepreneurship.

Sole Proprietorship A business owned by one person. May name it after yourself or file for a DBA (Doing Business Under an Assumed Name) Advantages: –Receive all profits –General requirement is knowledge of industry Disadvantages: –Take all risks Most popular form of ownership

Partnership Business owned by two or more people who combine their capital, experience, and abilities in order to share the risk of loss and the chance of profit. 1.5 million partnerships in U.S. Least used form of ownership

Partnership Agreement Law does not require a partnership to be a written agreement but it is a good idea! 2 Types of Partnership 1.General Partnership- all have unlimited personal liability and take full responsibility for mgt 2.Limited Partnership- liability is limited (investors only); only risk is their initial investment

Partnership- Reasons for Forming Gain capital Combine experiences Share risk/losses Share workload Disadvantages: personality conflicts, liable for each others’ actions

Corporation Chartered or registered by a state and legally operates apart from its owner(s). More complex than other forms of business Attorney will have your business “incorporated”- Filing a certificate of Incorporation with the state in which the company will operate Only 20% of businesses are corp. However, they do over 80% of all U.S. sales

Forms of Corporations Closed Corporation Subchapter- “S-Corporation” Open or Public Corporation

Disadvantage of Corp: Taxed twice- corporation pays federal taxes on its profits. From these profits, it pays stockholders earnings (or dividends). The stockholders must then pay personal income taxes on that money.

Closed Corporation Held privately –Not traded on the stock market Not required to make financial records public (in form of annual report)

S Corp Held privately Limited to 35 shareholders Taxed as a sole proprietorship

Open/Public Corp Traded on stock exchange Heavy tax burden More access to capital due to sale of stock

Which is best? Depends on… 1.Nature of business 2.Desire for independence 3.Financial considerations 4.Willingness to assume risk 5.Experience