B. OVERVIEW OF SMALL BUSINESS 3.00 Explain the legal environment of small business. 3.01 Compare forms of business ownership. (The logos used in this PowerPoint were copied directly from corporate websites. They have not been altered in any way.)

Three basic forms of business ownership Sole proprietorship Partnership Corporation

A business owned & operated by one person. Sole proprietorship A business owned & operated by one person. Easiest and most popular form of business ownership.

Advantages of sole proprietorships Easy and inexpensive to create. Owner makes all business decisions & receives all profits. Least regulated form of business ownership. (by the gov’t.) Business itself pays no taxes.

Disadvantages of sole proprietorships Owner has unlimited liability for all debts and actions of the business. Unlimited liability: The debts of the business may be paid from the personal assets of the owner. Difficult to raise capital ($$$). Limited by the owners skills & abilities. Death of the owner automatically dissolves (ends) the business.

Partnership A form of business ownership in which 2 or more people share the assets, liabilities & profits.

Types of Partnerships General partnership: all partners have unlimited personal liability and take full responsibility for the business. Limited partnership: partners’ liability is limited to their investment. Joint venture: two companies join to complete a specific project. The partnership ends after a specified period of time. Strategic alliance: two businesses work together for mutual benefit.

Advantages of partnerships Shared decision making & responsibilities. Easier to raise capital. Few gov’t. regulations. Business losses are shared by all partners.

Disadvantages of partnerships Partnerships may lead to disagreements. Some entrepreneurs are not willing to share responsibilities & profits. Some entrepreneurs fear being held legally liable for the error of their partners. Each owner has unlimited liability.

Corporation A business that is chartered by a state and legally operates apart from its owners.

Types of corporations C-corporation: (1) most common form of corporation. (2) protects the entrepreneur from being personally sued. Subchapter S corporation: Corporation taxed like a sole proprietorship or partnership. Nonprofit corporation: make money for reasons other than the owner’s profit. Limited Liability Company (LLC): A new form of business ownership that provides limited liability and tax advantages.

Advantages of corporations raise money by issuing shares of stock. Offers owners limited liability. Limited liability: Owners are liable only up to the amount of their investments. People can easily enter/leave the business by buying or selling their shares of stock. Hire experts to professionally manage each aspect of the business.

Disadvantages of corporations Need legal assistance establish Start-up is expensive. more gov’t. regulations than other forms of business. More paperwork Income is taxed twice (business & personal)

Alternate approaches to starting a business Buy an existing business. Enter a family business. Own a franchise business.

Advantages of buying an existing business already have customers, suppliers and procedures. Seller of the business may be willing to train the new owner. existing financial records. Financial arrangements may be easier.

Disadvantages of buying an existing business for sale because it is not making a profit Problems may be inherited Many entrepreneurs may not have the capital (money) needed to purchase an existing business.

Advantages to entering a family business A sense of pride and accomplishment A business can remain in the family for generations. Some people enjoy working with relatives. Knowing that your efforts are helping those whom you care about.

Disadvantages to entering a family business Senior management positions are often held by family members who may not be the best qualified. It may be difficult to retain qualified employees who are not members of the family. Family politics Difficult to separate business life and private life. It is often difficult to set policies and procedures and to make decisions.

Own a franchise business Franchise: A legal agreement that gives an individual the right to market a company’s products or services in a particular area. Franchisee: A person who purchases a franchise agreement. Franchisor: The person or company who sells a franchise. Initial franchise fee: The fee the franchise owner pays in return for the right to run the business.

Advantages of purchasing a franchise business An established product or service is being provided. Franchisors often offer management, technical, and other assistance. Equipment and supplies may be less expensive. A guarantee of consistency attracts customers.

Disadvantages of purchasing a franchise business The cost of franchises may be high, which can reduce profits. Franchise owners are limited in the decisions they can make regarding the business. The performance of other franchises impact on the franchisee. The franchise agreement may be terminated by the franchisor.