1. Own It Your Way
Business Ownership
Business Law LAP 1

2. Objectives
Explain the most common forms of business ownership in a private enterprise system.
Discuss business start-up strategies.

3. Objective
Explain the most common forms of business ownership in a private enterprise system.

4. Pete’s gutter-cleaning business—growing fast over past five years
Trouble keeping up with all his clients
Needs to either:
Hire an employee
Take on a partner

5. Pros and cons to each decision
Business ownership form affects:
Business activities
Risks
Responsibilities
Your choice must suit your needs and objectives.

6. Importance of Ownership
Your ownership choice depends on:
Personal circumstances
Financial needs
Type of business

7. Importance of Ownership
Choosing appropriate structure is important because it affects:
Taxation
Liability
Ownership control

8. Types of Business Ownership— Sole Proprietorship
Owned by one person
Nearly 80 percent of U.S. businesses
Owner receives all profits and takes all risks (unlimited liability)

9. Types of Business Ownership— Sole Proprietorship
Usually small, fewer than 50 employees
Often chosen for businesses easily managed by owner or someone owner hires
Often found in small, local businesses and home-based businesses

10. Types of Business Ownership— Sole Proprietorship
Receives minimal government intervention
Business and personal taxes are not separated.
Usually does not need a lot of capital to get started

11. Types of Business Ownership— Partnership
Owned by two or more people
Often formed to combine capital, experience, and abilities of individual owners
Partners share chance for profits and risk of loss.
Partners decide what each owner will contribute and what each will get.

12. Types of Business Ownership— Partnership
Two basic partnership types:
General—each partner has unlimited liability
Limited—partners have limited liability
Limited—more complicated to set up than general
Partnership laws vary from state to state.
Partnerships can be used for most types of businesses.

13. Types of Business Ownership— Corporation
An “artificial being, invisible, intangible, and existing only in contemplation of the law” (U.S. Supreme Court)
Functions independently of its owners
Treated as a person with legal rights, duties, and powers

14. Types of Business Ownership— Corporation
Has the ability to:
Borrow and lend money
Buy and sell goods
Make contracts
Sue or be sued
Have an unlimited life span

15. Types of Business Ownership— Corporation
To be an owner, a person purchases shares of stock.
The more shares a person owns, the more control the person has.
A minority of U.S. businesses are corporations; however, they generate a majority of sales.
Subject to more government regulation than sole proprietorships or partnerships
Governed by a board of directors

16. Types of Corporations— Private (Close)
Does not offer shares for sale to the general public
Might have just a few shareholders
Shareholders often operate and manage the business.
Usually not required to make its financial activities public

17. Types of Corporations— Private (Close)
For tax reasons, must prepare reports for the state in which it operates
Subject to dual taxation:
Taxed on profits made by the company itself
Shareholders taxed on dividends

18. Types of Corporations— Subchapter “S”
Shareholders
Private corporation with special benefits designed to help small businesses
Taxed as a partnership to avoid dual taxation
To qualify, must have 100 or fewer shareholders and adhere to a number of government policies

19. Types of Corporations— Public (Open)
Can sell millions of shares of stock to the general public and have thousands of owners
Subject to more government regulation and taxation than other forms of ownership
Must provide financial information to the public (annual report)
Subject to dual taxation

20. Types of Corporations— Nonprofit
Operates to accomplish a specific mission—other than to make a profit
Usually helps society—charitable, educational, religious, scientific, etc.
Income used to fund programs and cover operational expenses
Generally not taxed by the federal government
Many rely on donations and grants.

21. Ways Corporations Grow
Merger
Two individual businesses combine to form one company.
Usually happens when a larger company purchases a smaller one (acquisition)
Consolidation—acquiring many smaller companies

22. Ways Corporations Grow
Expansion—growing operations with new capital from:
Selling more stock
Reinvesting profits
Obtaining bank loans

23. Types of Business Ownership— Hybrid Structure
LLP
Allows owners (members) to enjoy advantages of corporations and either sole proprietorships or partnerships
Depending on number of owners, can be structured in one of two forms:
Limited liability partnership (LLP)
Limited liability company (LLC)
LLC

24. Types of Business Ownership— Hybrid Structure
LLP
Members determine how to manage company and share profits.
Characteristics include:
Limited liability
Limited life
Limited taxation
Unlimited owners/partners
LLC

25. Discuss business start-up strategies.
Objective
Discuss business start-up strategies.

26. Types of Business Start-Up Strategies— Franchising
Method of distributing recognized goods/services through a legal agreement between two parties
Franchisor—seller or parent company who owns company name or trademark rights

27. Types of Business Start-Up Strategies— Franchising
Franchisee—acquires rights to operate business using parent company’s name
Often a desirable ownership option because product has established brand with solid reputation
To own a franchise, you first sign an agreement with franchisor and pay initial fee.

28. Types of Business Start-Up Strategies— Franchising
You may be responsible for:
Costs related to facility construction/leasing, equipment, insurance, legal fees
A royalty fee based on a percentage of your profits
Fees to cover advertising expenses
Expensive to start but can be very profitable in the long run

29. Types of Business Start-Up Strategies— Franchising—Types of Franchises
Business-format franchise:
Found in almost any industry
Usually available to anyone who has the capital to invest
Requires close and continuous working relationship between franchisor and franchisee

30. Types of Business Start-Up Strategies— Franchising—Types of Franchises
Business-format franchise:
Franchisors often provide:
Training
Financial guidance
Supply channels
Franchisees benefit from franchisor’s national advertising programs.
Franchisees are limited in their goods/services, vendors, operating hours, etc.

31. Types of Business Start-Up Strategies— Franchising—Types of Franchises
Piggyback franchising (within business-format franchise)
Retail franchise operates within facilities of another store (host).
Host increases its product line.
Franchisee has access to host’s customers.

32. Types of Business Start-Up Strategies— Franchising—Types of Franchises
Product trade-name franchise:
Independent sales relationship between a supplier (franchisor) and a dealer (franchisee) to stock and sell a specific line of products
Also called dealership or exclusive distributorship

33. Types of Business Start-Up Strategies— Franchising—Types of Franchises
Product trade-name franchise:
Characteristics:
Products bought on consignment or straight from the supplier
Business name chosen by franchisee
Franchisee has a great deal of experience and financial ability before franchisor agrees to arrangement.

34. Types of Business Start-Up Strategies— Multi-Level Marketing Business
Pays commissions on sales to people at two or more levels
Sales representatives work independently, selling products and getting others to sell them as well.
Representatives receive payouts from the sales of people “under” them.

35. Types of Business Start-Up Strategies— Multi-Level Marketing Business
Characteristics:
People become representatives because they used the product and liked it.
Most distributors are home-based and offer flexible scheduling.
Most representatives can get started for $100 or less.
Commission and bonus structures differ between companies.
Representatives determine their income by the amount of time and energy they put into developing business contacts.
Beware of pyramid schemes—always check with Better Business Bureau!

36. Types of Business Start-Up Strategies— Licensing
An owner’s authorization for another entity to use trademarked, copyrighted, or patented material for a specific activity, during a specific time period, for the profit of both parties

37. Types of Business Start-Up Strategies— Licensing
Licensor—owner of the material
Licensee—buyer
Licensee pays royalties to licensor in addition to initial licensing fee.

38. Types of Business Start-Up Strategies— Licensing
Many types and sizes of businesses grant licenses for many things, including:
Technological information
Intellectual information
Industrial processes or methods
Formulas or recipes
Recognized brands, names, or logos
Music and art
Inventions

39. Types of Business Start-Up Strategies— Joint Venture
Also called strategic alliance
Two or more businesses enter into a relationship by combining complementary resources such as technology, skills, capital, or distribution channels for the benefit of all parties.

40. Types of Business Start-Up Strategies— Joint Venture
Relationship is usually short term and involves a single project or transaction.
Can help businesses reach new target markets and develop new profit centers for less money than it takes to do it alone

41. Think of the businesses in your town.
Name one example of each of the following:
Sole proprietorship
Partnership
Corporation
Nonprofit corporation
Franchise
Which of these types of businesses would you like to own?
Why?

42. A corporation first offers shares to the public in an initial public offering (IPO).
Companies can find ways to make IPOs work to their advantage.
A company might offer shares for sale at $10,000 per share or restrict potential investors from buying in unless they purchase a certain number of shares.

43. This “shuts out” smaller investors and make shares available only to:
Wealthier individuals
Institutional investors investing for their clients
Although this is not illegal, many people consider it unethical.
What do you think?

44. MBAResearch Acknowledgments Original Developers
Christopher C. Burke, Sarah Bartlett Borich, MBAResearch
Version 1.0
Copyright © 2010
MBA Research and Curriculum Center®

45. Digital-based photography sources:
DIGITAL VISION LTD.
Teenager Today
Obj. B: #130271
Photos copyright Digital Vision Ltd., all rights reserved.
833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5

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