Transcript Slide 1

UNIT 5
FORMS OF BUSINESS OWNERSHIP
PROPRIETORSHIP, PARTNERSHIP
and
CORPORATIONS
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THE FACTS ARE:
• Half of all new business fail within the
first five to six years.
• Most new business fail because of
financial reasons.
• If you want to compete in the
marketplace, you must go global.
1901-1966
Walt Disney was an avid artist who went into business with his
brother, Roy. They set up a studio in their uncle's garage, and
made a series of black-and-white cartoons featuring a rabbit
named Oswald, produced for Universal Studios. Disney left
Universal after they refused to give him a raise and produced the
first animated “talkie” firm, Steamboat Willie featuring a mouse,
Mickey Mouse. Walt Disney went from sketching “rabbits” to
running a multi - billion dollar empire.
WHO IS THIS FAMOUS
ENTREPRENEUR?
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ENTREPRENEUR
BY DEFINITION:
SOMEONE WHO UNDERTAKES THE RISK OF STARTING,
OWNING, OPERATING A SMALL BUSINESS FOR THE
PURPOSE OF MAKING A PROFIT
ANOTHER WAY OF LOOKING AT IT:
ENTREPRENEURSHIP
BEING IN BUSINESS FOR YOURSELF IS
WORKING 8O HOURS PER WEEK TO
AVOID WORKING 40 HOURS FOR
SOMEONE ELSE
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PROPRIETORSHIP
Sole Proprietorship
Aka Sole Trader
– business owned and
managed by one person
Proprietorship
-legal aspect of business
-Proprietor
– owner/manager
ClipArt, canine coiffure, is
Nancy Agababian, professional
dog groomer, an artist and
designer who has turned her
creative passions to
beautifying the doggies of New
York. Full service grooming
includes bath, fluff, styling, ear
and teeth cleaned, nails
trimmed.
Rewards of entrepreneurship:
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Freedom, Confidence, Contribution.
WHY SEEK SELF-EMPLOYMENT?
UPSIDE
1. Be your own boss.
2. Make your own decisions.
3. Profit from your hard work.
DOWNSIDE
1. Work 80 hours a week.
2. Go years without a vacation.
3. Make less money than you did when you were
employed.
4. Lose your life savings if you get sick and can’t
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work for a long period of time.
Why do people become entrepreneurs?
•TO FOLLOW YOUR DREAM
•PROVE YOURSELF
•BE ALL YOU CAN BE
•FED UP WITH POLITICS/POLICIES OF CURRENT JOB
•BELIEVE YOU CAN DO IT BETTER
•ONCE IS LIFETIME OPPORTUNITY
•RECENTLY PROMOTED, DEMOTED, GIVEN WALKING
PAPERS
DID YOU KNOW:
More than half of the companies on the 2009 Fortune 500 list were launched
during a recession or bear market, along with nearly half of the firms on the 2008
Inc. list of America’s fastest-growing companies.
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source: The Economic Future Just Happened, June 2009
ENTREPRENEUR CHARACTERISTICS
1. RISK TAKER – calculated risks
2. DECISIVENESS –
--where am I now?
--where do I want to be in the future?
--how can I reach that goal?
3. ACTION TAKER – initiative to make decisions a reality
4. INNOVATIVE – ability to see a need and fulfill a demand
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GETTING A BUSINESS STARTED
REQUIRES A BUSINESS PLAN
--Written document that describes the nature of the
business, the company’s goals and objectives, and how
they will be achieved.
AND THESE FOUR THINGS:
Funds
Knowledge of business interested in
Work experience
Opportunity
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Betty Caskey
Balance Sheet
Current Date
ASSETS
Cash
LIABILITIES
$50,000.00
Accounts Payable
Merchandise
Inventory
75,000.00
Other Debts
Equipment
63,000.00
Total Liabilities
Land & Building
$47,000
78,000
$125,000.00
182,000.00
CAPITAL
B. Caskey, Capital
TOTAL ASSETS
$370,000.00
TOTAL LIABILITIES &
CAPITAL
245,000.00
$370,000.00
The concept was launched in
response to difficulties his
girlfriend encountered when she
was trying to sell old Pez
dispensers and other collectibles.
He knew there was a huge
community of people interested in
selling used merchandise, and the
Internet seemed like the logical
place to bring them together.
Using his personal webpage, he
started a sole proprietorship with
a prototype called Auction Web in
1995. In a short period of time, the
company was incorporated and
the name changed to?? and went
public in 1998- but just three years
earlier, it was a small, sole
proprietorship.
Pierre Omidyar, E-bay founder
Net worth
$6.7B
Net2011
workth:
$6.7B
WHO IS THIS VERY RICH
ENTREPRENEUR?
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DISADVANTAGES OF
SOLE PROPRIETORSHIP
(aka sole trader)
Owner may lack special
skills and abilities.
Owner may lack funds.
Owner bears ALL losses.
Illness/death may close
business.
This famous sole proprietor purchased a
Ben Franklin variety store in Newport,
Arkansas. The store was a franchise of the
Butler Brothers chain.
WHO IS OUR
FAMOUS
ENTREPRENER?
He made sure shelves were consistently
stocked with a wide range of goods and
opened it in 1950 as the "Eagle"
department store, but it didn't fare as well.
When he bought the franchise the store
was doing $72,000 in sales annually. By
1950, the store was doing $250,000 in
sales annually due to ideas and practices
of this entrepreneur.
Because of the variety store's enormous
success, the landlord, P.K. Holmes,
refused to renew the lease when it expired,
desiring to pass the store onto his son. The
lack of a renewal option, together with the
outrageous rent of 5% of sales, were early
business lessons for our entrepreneur.
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WHAT TYPE OF BUSINESS IS
SUITED TO BEING A
PROPRIETORSHIP?
LET’S LIST SOME!!
TWO THINGS TO REMEMBER:
1) One that can be managed by the proprietor or
those hired by the proprietor
2) Those that do not require a great amount of
money.
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Why do you think many
small business fail?
1)
lack of capital
2)
impatient
DID YOU KNOW:
A small business is "one that is independently owned and
operated and which is not dominant in its field of operation
BUT can still have 500 employees and up to $7M in revenues13
PARTNERSHIP
UNINCORPORATED BUSINESS
ORGANIZATION OWNED BY TWO OR MORE
PERSONS CALLED GENERAL PARTNERS AND
SHARE EQUALLY IN THE DEBT.
PARTNERSHIP
AGREEMENT
CLEARLY AGREED UPON TERMS OF
EACH PERSON’S RESPONSIBILITIES
AND ALL CONDITIONS OF CONTRACT.
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PARTNERSHIP ADVANTAGES
Pool skills and abilities
Increased sources of capital
Improved credit position
Contribution of goodwill
Increased concern in management
of business
Elimination of competition
Easier to retire from management
of company
WHO ARE THE
ENTREPRENEURS?
They took a $5 course
on ice-cream making
and in 1978 opened the
their first store in a
converted Burlington
gas station. They made
it a point to connect
with the community,
hosting a free film
festival and giving
away free scoops on
the first anniversary of
the store, a tradition
that still continues. In
1980, the duo began
making pints to sell to
local grocers. In 1981,
they expanded this
operation. By 1987
sales were at $32
million, operating in
15 18
states.
Betty Caskey & Debora Williams
Balance Sheet
Current Date
ASSETS
Cash
Merchandise
Inventory
Equipment
Land & Building
LIABILITIES
$150,000.00
125,000.00
90,000.00
Accounts Payable
$ 80,000.00
Other Debts
125,000.00
Total Liabilities
205,000.00
282,000.00
CAPITAL
TOTAL ASSETS
$647,000.00
B.Caskey, Capital
221,000.00
D. Williams, Capital
221,000.00
Total Capital
442,000.00
TOTAL LIABILITIES &
CAPITAL
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$647,000.00
The duo met working on
WHAT
IS
THE NAME OF
their doctorates in computer science
atTHE
Stanford
University in 1995.
COMPANY?
Together, they created a
PARTNERS?
search engine, with the goal of
organizing the vast amount of
information available on the Net.
Initially called BackRub, the
software catalogued search results
by popularity of pages.
In 1998, the pair dropped
out of Stanford, changed their
startup’s name, set up shop in
friend's garage, raised $1 million in
capital from friends, family, others.
Larry Page and Sergey Brin
Today, the world's No. 1
Founded
Google,
1998
Internet
search
engine, earning
Personal
wealth
$19.6B17
2010
$16.5 billion
in sales—mostly
through
ad sales.
Current
age of both: 38
COMBINING BUSINESSES
Partner A invests $40,000 Partner B invests $30,000
Total investment = $_______ Equal partnership?____
To have an equal partnership, how much would ___
have to invest? $________
What % of the partnership would each partner have if
not an equal partnership? (% of ind. invest./total invest.)
A
B
______/________= ______%
________/_______=_____%
Assets= Bldg+ what each brings. Total worth=all assets combined
What is significant about equal status over non-equal status?
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UNLIMITED LIABILITY
• Business and partners
responsible for all debt of the
business.
• Ability of banks or courts to
secure personal assets in
cases of bankruptcy.
• Ability to seize all personal
assets from partners with
unlimited liability to satisfy the
debt after all business assets
have been seized.
• Personal assets: what you
OWN outside of the business
• Examples: house, car, boat,
personal savings account, etc.
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CARLTON – BAKER
EQUAL PARTNERSHIP
UNLIMITED LIABILITY
• Business Fails
Amount of debt? ________
• Assets of business: $100,000
• Liabilities of business: $360,000
• Baker – Personal Assets of $170,000
• Carlton – Personal Assets of $30,000
1. What is each partner’s share of the debt?_______
2. What will Carlton end up paying?$____________
3. What will Baker end up paying? $____________
4. Why? ____________________
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THREE PARTNERS – EQUAL PARTNERSHIP
ABC PARTNERSHIP DISSOLVING
$100,000 still owned to creditors after converting
everything to cash. All partners – unlimited liab.
Partner A has only $10,000 in personal assets
Partner B and Partner C liable for $______Why?
1)Who will creditors go after to collect $100,000?
2) As long as unlimited liability, can sue for what?
3) Can partners sue another partner?
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4) Would B&C sue A? If no, why? If yes, $_____
LIMITED PARTNERSHIP
Restricts the liability of the partner to the amount of
the partner’s investment
THE TERMS OF LIMITED PARTNERSHIPS:
1. One partner must have unlimited liability
2. Name of limited partner not in firm name
3. Legal notice must be given to all creditors of those
with limited partnership
4. Advantageous for investment of money but lack of
time or interest to actively manage
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BUSINESS NAME
Business Name Rules | DBA - Doing Business As : DBAFilingOnline.com
When choosing, list FOUR tips given in video
•Proprietorship or partnership –can be conducted under
name or names of owner or owners
•And Company or & Co. – if two partners, not permissible
to use name such as Jones, Smith & Co—name
indicates more than two partners.
•Names included in “Company” must be identified by
registration at public recording office.
•Artificial Name (Superior Shoe Store) is fictitious or
assumed name, registered as DBA or “Doing
Business As”
•Proper registration required for creditors to know who is
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responsible for business.
LIMITED PARTNERSHIP
“A” CORPORATION
A UNLIMITED LIABILITY
$100,000 INVESTED
B/C LIMITED LIABILITY
$25,000 INVESTED
“A” CORPORATION: Debt: $200,000
1)How much will B owe?__________________
2)How much will C owe?__________________
Total of B/C toward debt= $___________
3)How much will A owe?_______________Why?
4)Why isn’t B & C listed in company name?
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CORPORATIONS
--most common form of business
organization.
--one which is chartered by a state.
--given many legal rights as an
entity separate from its owners.
WALMART
WITHOVER
EMPLOYEES
What
is the
largest2M
corporation
in the United States?
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CORPORATE ADVANTAGE IN MARKETPLACE
•
•
•
•
•
•
•
•
Can supply goods and services to a more people
Consumers attracted to well-known brands (Proctor &
Gamble)
Sales--17 times more than sales from proprietorships;
15 times more than sales from partnerships in the U.S.
Can sell their products at lower prices
WHY? large volume, small costs per unit sold.
Financial resources to conduct research & development
Offer more varied job opportunities
Higher wages & greater job stability
Better health and retirement benefits.
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In the United States, most large
businesses are organized as
corporations.
Many small businesses that become
successful often convert from sole
proprietorships and partnerships to
corporations as they grow in size.
LET’S SEE WHY!!
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Basic Features of
a Corporation
DEFINITION:
business owned by a
group of people and
authorized by the state in
which it is located to act
as though a single person
in:
a) making contracts
b) owning property
c) ability to sue
d) ability to be sued
From left to right: Chad Hurley, Steve
Chen, and Jawed Karim
DID YOU KNOW:
This company began as a venture-funded
technology startup, primarily from a $11.5
million investment by Sequoia Capital
between November 2005 and April 2006.
WHAT DID THIS
Early headquarters were situated above a
CREATE?
pizzeria TRIO
and Japanese
restaurant in San
Mateo, California.
October 2006, Google Inc. announced that
it had acquired this company for $1.65
billion in Google stock. Share of YouTube
sale:
HURLEY -34 - $345.6M ; CHEN – 33 - $350M
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KARIM -32 -$64M
It all starts with a CHARTER
official document granted by a state giving power to run a
corporation (aka: Certificate of Incorporation)
Certificate of Incorporation
NAME OF CORPORATION
ARTICLE FIRST
ARTICLE SECOND
ARTICLE THIRD
ARTICLE FOURTH
The name of the Corporation is
The address
The purpose of the Corporation is to
engage in
Authorized Stock
The total number of shares & value.
Sample charter for nonprofit
Sample Ohio Articles of Incorporation (Non Profit Corporation)
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Keys to the corporation held by:
stockholders, directors, officers
Who are the Stockholders
a. Owners of the corporation
b. Right to stock certificate
a. Can transfer ownership
b. Right to vote (present or proxy—absentee ballot
Sample Proxy Card
a. Right to receive dividends based on shares
b. Dividends-–profits distributed to shareholders on per
share basis
c. Right to buy new stock if issued
d. Right to share in net proceeds if dissolved
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Stockholders
elect Board of Directors
Ruling body of corporation elected by stockholders based on
their knowledge in making good policy decisions
Responsibilities of Board of Directors:
1. Appoint officers of the company CEO, CFO, Secretary, etc.
A corporation must have at least three officers: (1) a
president- chief executive officer (CEO) (2) a treasurer
or chief financial officer (CFO) and (3) a secretary.
2. Manage the corporation by developing plans and policies
to guide corporation.
3. Make major business decisions
4. Oversee general affairs of the corporation
Officer Responsibilities
•Run the day-to-day operations of the corporation.
•Report to Board of Directors
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CLOSE CORPORATION
WHICH
ONEPRIVATELY
OF THE THREEHELD
EXAMPLES
OF PRIVATELY
(aka
CORPORATION;
HELD CORPORATIONS IS THE LARGEST IN TERMS OF
aka Closed
EMPLOYEES
ANDCorporation)
REVENUE?
CARGILL – food, agricultural, financial and industrial
1. Privately
held. founded
(Family-run
products
in 1865 business)
Ex: Cargill,
Mars, founded
LEGO,inIKEA
MARS
– food company
1911
2. Financial
activities remain private.
LEGO – toy company founded in 1932
3. Stock
shares
not offered
to the
public.
CARGILL
is
a
privately
held,
multinational
corporation,
based
in
Minnesota.
IKEA – home products company founded in 1934 founded in
1865,Must
and has grown
the country's financial
largest privately held
corporation (in terms of
4.
fileinto
detailed
information
employees(158,000 employees at 1,100 locations in 66 countries) 25 percent of all
United
States grainthe
exports
22 percent of
the United States domestic
meata& year
poultry
with
federal
government
once
market
but it does not become public
CARGILL CONTINUES TO BE OWNED BY THE CARGILL FAMILY. MULTNATIONAL
knowledge.
CORPORATION MEANS THEY HAVE COMPANIES OUTSIDE OF THE UNITED
STATES BUT ONE HAVE ONE CENTRAL CONTROL LOCATION AND THAT IS IN
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MINNESOTA.
OPEN CORPORATION
(aka PUBLICLY OWNED CORPORATION)
1. Offers shares of stock for public sale.
2. They can raise money and spread risk more easily
by offering shares to the broader markets.
3. Must file detailed financial information with the
federal government which the federal government
and potential investors can examine. (quarterly)
4. Public firms can also reward key employees with
shares or options.
Ex: WalMart
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ADVANTAGES OF CORPORATIONS
1. Available Sources of Capital
2. Limited Liability of Stockholders
3. Permanency of Existence
4. Ease in Transferring Ownership
What is the biggest and most profitable
corporation in the world? WALMART
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DISADVANTAGES of CORPORATIONS
1) Double Taxation
• Taxed as corporation AND
• Taxed as stockholder on dividends
2) Government Regulation and Reports
3) Stockholders Records
4) Charter restrictions
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JOINT VENTURE
•Two or more "parent" companies agree to share
capital, technology, human resources, risks and
rewards in a formation of a new entity under shared
control.
• Limited time frame (5-7 years)
• 1/3 of fast-growing companies involved in JV
(ex: CBS and Reliance Broadcast Network—India)
VIRTUAL CORPORATION (aka Virtual Enterprises)
•employs electronic means to transact business
as opposed to a traditional brick and mortar
business examples: Amazon.com; Web 2.0
LOOK UP WHAT A BRICK AND MORTAR BUSINESS
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IS – WRITE DEFINITION ON NOTE SHEET.
S-CORPORATION
1) must have no more than 100 stockholders
2) business can’t own more than 80% of stock
in another corporation
3) no more than 25% of income of corporation
can be from sources other than for the
purpose stated in the charter
4) stockholders must be permanent citizens
or residents of U.S.
5) taxed as if partnership (limited liability, no
double taxation)
FYI: S stands for subchapter & type of
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Federal tax laws that apply
C-Corporation
• Similar to S Corporation but unlimited
number of owners.
• Not restricted as to the types of eligible
shareholders like S Corporations.
Shareholders can include individuals,
other corporations, etc.
• Subject to double taxation
FYI: When a small business incorporates, it is automatically a
C-Corporation (aka regular corporation) The C & S are done
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for taxation purposes.
Limited Liability Company (LLC)
•Owners have limited personal liability for debts and
actions of the LLC.
•Business is not taxed. Tax is only paid at the
shareholder level.
•Owners not personally liable for debts or liabilities
of the business like a corporation, but have the tax
benefits of partnerships.
•No maximum number of members. Most states
permit “single member” LLCs, those having only
one owner.
•A few types of businesses generally cannot be
LLCs, such as banks and insurance companies. 39
PARTNERSHIP vs CORPORATION
vs S-CORPORATION
1) Major weakness of partnership is unlimited liability
whereas strength of corporation is limited liability
2) Major strength of partnership is lower income tax rate
whereas weakness of corporation is higher income tax rate
than that paid by partnership.
3) Stockholders have to pay personal income tax on
dividends distributed by corporation (double taxation)
S-Corporation offers lower taxes and limited liability, profits
from the corporation go directly to the stockholders who
include them in their individual income tax returns avoiding
double taxation
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SOCIAL ENTREPRENEURSHIP
Social Entrepreneurship has been called the new “NonProfit
which focuses on social and environmental issues.
EXAMPLE:
Ever Green Environmental story. The program started in 1993
for mental health employees, who worked to recycle paper,
aluminum cans and cardboard, all in a workshop. Today,
Ever Green Recycling has grown to become a leading
environmental business. It presently has three depots in
St. John's. Ever Green has seen thousands of products
bring transformed in its recycling unit, reducing waste and
saving energy. And, even today Ever Green supports
physical and mental health programs.
They do not pay taxes and do not exist to make a profit
Accounts for 6% of GDP
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QUASI-PUBLIC CORPORATION
•Privately-operated corporation supported by the government
and whose stock is publicly traded.
•Specifically mandated responsibilities spelled out in the
corporations charter.
•An example of a quasi-public company is Fannie Mae, Sallie
Mae, Freddie Mac government sponsored to sell mortgages
to ownership among low- to middle-income Americans. Sallie
Mac was for student loans; Post Office, Amtrak
SEPT. 2008
•FYI: FANNIE AND FREDDIE OWNED $5T IN U.S.
MORTGAGES—HALF THE NATION’S TOTAL. BAILOUT:
$600B in govt. buying of assets of F&F; estimate bailout will
grow to $1T.
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COOPERATIVES
Businesses owned and operated by
a group of individuals for their mutual
benefit.
Purpose is to provide members
with cost and profit advantages when
purchasing (i.e. inventory) that they
would not otherwise have.
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Did you know:
• 40 The average and median age of company
founders
• 95% of entrepreneurs have a bachelor’s degree
• 47% of entrepreneurs have an advanced degree
• 69.9% are married
• 59.7% of entrepreneurs have at least one child
when they launch their first business
• 43.5% of entrepreneurs have two or more children
when they launch their first business
• Less than 1% came from extremely rich or
extremely poor backgrounds
• 74.8% indicated desire to build wealth as an
important motivation in becoming an
entrepreneur.
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