1. Part 2 Selecting a type of ownership

2.  Purchase an existing business  Franchise  Take over the family business  Start your own business

3.  Advantages  Already has necessary equipment, suppliers, and procedures in place  Seller may train new owner  Prior records of revenues, expenses and profits  Financial arrangements can be easier  Disadvantages  Many are for sale because they are not earning a profit  Serious problems may be inherited  Capital is required

4. 1. Write specific objectives about the kind of business you want to purchase and identify businesses for sale that meet your objectives 2. Meet with sellers/brokers to investigate opportunities 3. Visit during business hours to observe 4. Ask for past three years of accounting records 5. Ask for everything in written format 6. Determine how you will finance 7. Use expert to help determine price to offer

5.  Franchise gives you the legal right to market a company’s goods and services in a particular area  Operating costs  Initial franchise fee-payment for right to run the franchise  Startup costs-costs associated with beginning the business-rent, equipment, inventory  Royalty fees-weekly/monthly payments-usually a percentage of income  Advertising fees-fees paid to franchise company to support TV, magazine ads etc of the franchise as a whole

6.  Study the disclosure document and proposed contract  Interview current franchise owners  Investigate history and profitability  Investigate earnings claims  Obtain in writing number of owners who have done as well as claimed  Listen carefully to sales presentation  Shop around  Get the seller’s promises in writing  Determine what will happen if your cancel agreement  Get advice from professionals

7.  Advantages  Established product or service  May be offered management, technical and other assistance  Equipment and supplies may be less expensive  A guarantee of consistency attracts customers  Disadvantages  Franchise fees are costly and cut down on profits  Less freedom to make decisions  Dependent on the performance of other franchises in chain  Franchisor can terminate the franchise agreement

8.  Advantages  Pride and sense of mission  Business remain in family  Working with relatives and realize efforts are benefiting family  Disadvantages  Family members hold senior positions regardless of ability  Poor decisions may be made  Family politics  Blurred distinction between private life and business life  Must be willing to compromise  What to do if no family member to take it over

9.  Advantages  Make all decisions  Create own destiny  Satisfaction  Challenged  Profit  Disadvantages  Must estimate demand, no guarantees  Must make all decisions  Risk

10.  Sole proprietorship  Business owned exclusively by one person  Advantages  Little government control  Simple  Disadvantages  Difficult to raise money  Burden of all risks  Personal assets at stake  Partnership  Business owned by two or more people  Advantages  Won’t have to come up with capital on your own  All losses shared  Little government regulation  Disadvantages  Share profits and responsibilities  Held liable for partners errors  Disagreements

11. 1. Name of business 2. Names of partners 3. Type and value of investment made by each partner 4. Managerial responsibilities of each partner 5. Accounting methods to be used 6. Rights of each partner to review the books 7. Division of profits and losses 8. Salaries to be withdrawn by partners 9. Duration of the partnership 10. Conditions under which the partnership can be dissolved 11. Distribution of assets upon dissolution.

12.  Corporation  A business that has the legal rights of a person but is independent of its owners  Share of stock is a unit of ownership in a corporation  Board of directors group of people who make important decision affecting the corporation  Dividends are distributions of corporate profits to the shareholders

13.  Advantages  Liability is limited to the amount of your investment  Personal assets are not at stake  Able to raise large amounts of capital  Lenders more willing to lend to corporations  Shareholders not involved in day to day operations  Disadvantages  Complicated to set up  Costly(will need a lawyer)  Articles of incorporation must be very specific or business may be limited  Subject to government regulation  Income taxed twice

14.  S Corporation  Small corporations  Taxed by individual shareholders not as a business  Many set up as S corps b/c of loses in early years.  Use these losses to offset personal income thereby giving them a tax break  Limited Liability Company  Offers the limited liability of a corporation  Not subject to the rules of an S corp  Provides benefits of partnership taxation and limited personal liability  Limited by state law to certain types of businesses and limited life of 30 years

15.  Promoting competition  Antitrust legislation  Sherman Act-collusion  Clayton Act-cannot require a customer to purchase one good to get another  Robinson-Patman Act-price discrimination  Wheeler-Lea Act-unfair or deceptive practices  Government Agencies  Antitrust division  FTC  Intellectual Property  Original, creative work of an artist or inventor  Patents-grant of a property right to an inventor to exclude others from making, using, or selling the invention  Copyrights-protects original works of authorship, including music, literary, dramatic, and artistic  Trademarks-name, symbol or special mark used to identify a business or brand name of a product.

16.  Protecting consumers  Licenses-required by some businesses  Zoning laws  Consumer protection laws  FDA Act  Consumer Product Safety Act  Truth in Lending  Fair Credit Billing Act  Contract Law  Agreement  Consideration  Capacity  Legality