Introduction to Business & Marketing Business Ownership Introduction to Business & Marketing

Objectives Define entrepreneurship. Understand the importance of small businesses in the economy. Identify the major types of business ownership. Compare advantages and disadvantages of the different types of business ownership.

Entrepreneurship Entrepreneurship is the process of starting and managing your own business. An entrepreneur is someone who attempts to earn money and make profits by taking the risk of owning and operating their business.

Entrepreneurship Advantages Disadvantages Personal freedom Personal satisfaction Potential for increased income Risk / potential of loss Long, irregular hours Need for daily discipline

Characteristics of Entrepreneurs Risk taker Decision maker Hard worker Ambitious Goal setter Enjoys challenges Can adapt to changes

Importance of Small Business Small businesses provide 55% of jobs. There are 1/2 million business started each year – only the strong survive!

Types of Business Ownership Sole Proprietorship Partnership Corporation Limited Liability Company (LLC)

Sole Proprietorships About 3/4 of all businesses in the United States are sole proprietorships. A sole proprietorship is a business owned by one person. Sole proprietors usually have a special skill by which they can earn a living (i.e. plumbers, contractors, wedding planners, etc.).

Sole Proprietorships Advantages Disadvantages Easy to start up Able to make all decisions for the business Keep all profits Unlimited liability Owner is responsible for company’s debts Limited access to credit or financing Owner may not have all the skills or expertise necessary Business dissolves when the owner dies

Partnerships A partnership is a business owned by two or more people who share its risks and rewards. A partnership agreement outlines the rights and responsibilities of each partner.

Partnerships Advantages Disadvantages All partners share the risk Easy to start up Easier to obtain money Each partner contributes funds Bank more likely to lend Each partner brings different skills and talents to the business All partners share the risk May be held responsible for partner’s mistakes Unlimited liability Personality conflicts can affect decision making

Corporations A corporation is a company that is registered by a state and operates apart from its owners. The owner must get a corporate charter (business license) from the state where the main office will be located. To raise money, the owners can sell stock (shares in the company) to stockholders. The company must have a board of directors to govern the corporation.

Did You Know? Most “big name” businesses are corporations. Only 15 – 20 percent of all businesses in the United States are corporations. Corporations are responsible for 80% of all business that is conducted in the United States.

Corporations Advantages Disadvantages Limited liability Owners are only responsible for the capital they invested Easy to raise money by selling stock Business continues after owner’s death Professionally managed (hire experts) Double taxation Company pays tax on income Stockholders pay tax on profits More government regulations Difficult and costly to start up Complex business to run

Subchapter S Corporation One type of corporation Small business that is taxed like a partnership or sole proprietorship but has up to 35 shareholders

Limited Liability Company Also known as LLC Relatively new form of ownership Hybrid of a partnership and corporation Owners protected from personal liability Profits / losses pass directly to owners without taxation to the company itself

Franchises A franchise is a legal agreement to use the name and sell the products of a parent company in a designated geographic area. Franchisee: person who buys the rights to operate the business Franchisor: recognized company that allows independent owners to use their name The franchisee pays the franchisor an annual fee and a share of the profits.

Franchises Advantages Disadvantages High initial cost Owner receives thorough business training Uses a tested management system Owner is guaranteed a certain geographic area Usually widely recognized names High initial cost Owner has to follow strict rules and regulations Judged by performance of peers

Did You Know? Many businesses start as one form of business ownership, but move into other forms later. Example: Ben & Jerry’s started as a partnership, became a Subchapter S Corporation, and then eventually became the corporation we know today.