1. proprietorship
forms of
business ownership
partnership
corporation

2. [ characteristics] proprietorship
DEFINITION: A business owned and managed by one person, also known as a sole proprietorship.
PROPRIETOR: The owner/manager of a business who performs day-to-day tasks that make a business successful with the help of hire employees.
WORTH NOTING:
Most common form of business organization
Over 16 million proprietorships in the United States
30% of proprietorships are part-time businesses run out an office or home
Appealing to stay-at-home parents

3. [ advantages ] proprietorship Owner is the boss
Owner receives all profits
Owner personally knows employees and customers
Owner can make decisions (and quickly)
Owner is free from red tape
Pay less income tax than a corporation

4. [ disadvantages ] proprietorship
Owner may lack necessary skills and abilities
Owner may lack funds
Owner bears all losses
Assumes a great deal of risk
Illness or death may close the business

5. proprietorship
[ criteria ]
The type of business that can be operated suitably as a proprietorship is one that:
is small enough to be managed by the proprietor or a few people hired by the proprietor.
does not require a large amount of capital.
is primarily concerned with providing personal services.
is the type that sells merchandise/services on a small scale.

6. examples proprietorship SERVICES Dentists Accountants
Landscape Gardeners
Carpenters/Painters
Barbers/Hair Stylists
Website Developers
Graphic Designers
Day Care Providers
PRODUCTS
Newspapers/Magazine
Food Stands
Family Restaurants
Flower Shops
Small Grocery Stores
Web-Based Businesses

7. [ partnerships ]

8. [ characteristics] DEFINITION: A business owned by two or more people.
WORTH NOTING:
Partners must clearly agree upon each person’s responsibilities in order to be successful
Can be classified in a variety of ways
Silent or secret partners
Critical to prepare a balance sheet
Shows assets, liabilities, and capital at the start of the business
partnership

9. [ advantages ] Pooled skills and abilities
Increased sources of capital
For equipment, inventory, property, etc.
Improved credit
Contribution of goodwill
Increased concern in business management
Lower tax burden
Pay personal income taxes vs. tax on profits
Reduction in competition
Operating expense efficiency
Advertising, supplies, etc.
partnership

10. [ disadvantages ] Unlimited financial liability
Disagreement among partners
Partners bound by contracts
Uncertainty of partnership longevity
Unexpected death
Limited capital sources
“Too many cooks in the kitchen”
Unsatisfactory division of profits
Usually according to contributions, specified in contract
Labor, expertise, capital
Difficult to withdraw
partnership

11. [ criteria]
The type of business that can be operated suitably as a partnership is one that:
furnishes more than one kind of product or service.
Car dealer (sales/service departments)
has more than one location and/or operates long hours.
 Restaurants
could also be a partnership, especially those that offer professional services.
 Lawyers, doctors, accountants, etc.
partnership

12. If you were starting XYZ business, would you form a
proprietorship or partnership?
Why?

13. [ corporations ]

14. [ characteristics ]
CORPORATION: A business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners.
WORTH NOTING:
Few in number, large in size
Smaller corporations do exist
Often begin as small businesses
Corporate sales of goods/services estimated to be 17 times greater than sales from proprietorships and 16 times greater than sales from partnerships
corporation

15. [ characteristics ] INCORPORATION: Forming a new business
CHARTER: Official document through which a state grants the power to operate as a corporation
A CORPORATION IS…
In a sense, an artificial person created by the laws of the state.
corporation

16. [ organization ] Naming the business
 Corporation, Corp., Incorporated, Inc.
Clearly describe purpose of the business
 To operate a retail food business
Invest in the business
 Issue stock
Pay incorporation costs/tax
Prepare a balance sheet
Determine voting rights of stockholders
corporation

17. [ advantages ]
Several sources of capital, specifically sales of shares
Limited liability of stockholders – initial investment
More permanent type of organization than partnership/proprietorship
Easy to transfer ownership – selling stock
corporation

18. [ disadvantages ] Subject to numerous taxes Filing fee
State tax based on profits
Federal income tax
Dividends are taxed twice
Extensive government regulations
Must publish financial data
Time-consuming and expensive responsibilities
Record-keeping of stockholders (1,000’s)
Charter restrictions
New charter for diversification
corporation

19. [ franchise ]

20. [ characteristics ] franchise
DEFINITION: A legal agreement that gives an individual the right to market a company’s products or services in a particular area.
FRANCHISEE: The person who purchases a franchise agreement.
FRANCHISOR: The person or company that offers a franchise for purchase.
WORTH NOTING:
More than 500k people in the U.S. own franchises, and that number is growing
Franchising opportunities are available in virtually every field
Motels, pet stores, video outlets, etc.
The U.S. Dept. of Commerce lists more than 1,400 franchise opportunities by category

21. [ operating costs ] franchise INITIAL FRANCHISE FEE:
Fee the franchise owner (franchisee) pays in return for the right to run the franchise.
Can start as low as a few thousand dollars and can exceed hundreds of thousands of dollars.
START-UP COSTS:
Costs associated with beginning a business.
Renting/purchasing a facility
Renting/purchasing equipment
Purchasing inventory
ROYALTY FEES:
Weekly or monthly payments made by the owner (franchisee) of the franchise to the seller of the franchise (franchisor).
ADVERTISING FEES:
Fees paid to support television, magazine, or other advertising of the franchise as a whole.

22. [ advantages ] franchise
Entrepreneur is provided with an established product or service, which levels the playing field
Franchisors offer management, technical, and other assistance
On-site training
Start-up, daily operations
Tips on crisis management
Equipment and supplies can be less expensive
Large quantity purchase discounts from franchisor
Guarantee of consistency attracts customers
Brand recognition

23. [ disadvantages ] franchise
Franchises can cost a lot of money and cut down on profits
Initial capital/investment is high
Some profits are returned to franchisor as royalties
Owners of franchises have less freedom to make decisions than other entrepreneurs
Set product/service line, prices, etc.
Franchises are dependent on the performance of other franchisees in the chain
Benefit from success of other franchisees, but bad reputations can cause customer opinions and satisfaction to decline
Franchisor can terminate the franchise agreement
Failing to pay royalty fees or inability to meet conditions may result in loss of franchise and investment/non-renewal of contract agreement

24. [ franchise evaluation ]
Provide a background of franchise, then answer these questions:
What are the costs and royalty fees associated with the franchise?
Will I be guaranteed an exclusive territory for the duration of the franchise term, or can the franchisor sell additional franchises in the territory?
How profitable have other franchises in the area been? What do other franchisees think of the franchisor?
How long has the franchisor been in business? How profitable is the franchisor?
What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection?
Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise?
What happens if I want to cancel the franchise agreement?
Is becoming a franchisee of this business a good opportunity? Why or why not?

25. [ franchise evaluation ]