Entrepreneurship
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Entrepreneurship Entrepreneurship Presentation Transcript

  • 6 ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or© 2 0 1 3 C o s t ead e oL e a p u b n i c l y l a c R iegsh ti s l R e w e r vsei d e , Mi a y wnhoot l e eo rs c n n p a rdt ,. c o p i e d o r d u p l i c a t e d , o r p t a l c s b e eb t©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or eng g rni g. A l s . n b i a neposted to a publicly accessible website, in whole or in part.posted to a publicly accessible website, in whole or in part.
  • Business Ownership Options: The Big Four Sole Proprietorship – the business is owned by a single individual Partnership – two or more people serve as co-owners of the business Corporation – the business is a separate legal entity Limited Liability Company – a hybrid with characteristics of both a corporation and partnership 2©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Net Income by Form of Ownership 3©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Corporate Profit and Revenue • Corporate form of ownership reports 66% of profits; representing only 18.3% of all entities • Companies like Walmart, Exxon, Apple and General Electric have annual sales revenues in the billions (hundreds of billions) • But, 24% of all corporations report revenue less than $25,000Source: U.S. Census Bureau. The 2011Statistical Abstract of the United States Tables 743 and 744:http://www.census.gov/compendia/statab/2011/tables/11s0744.pdf, accessed January 23, 2011. 4 ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • Advantages and Disadvantages of Sole Proprietorships Advantages: Disadvantages:  Ease of Formation  Limited Financial Resources  Retention of Control  Unlimited Liability  Pride of Ownership  Limited ability to attract and maintain talented© David Gilder/Shutterstock.com  Retention of Profits employees  Heavy workload and  Possible Tax Advantages responsibilities  Lack of Permanence 5 ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • General Partnerships: Two Heads Can Be Better Than One Advantages: Disadvantages: Pooled Financial Resources  Unlimited Liability Shared Responsibilities  Disagreements Ease of Formation  Lack of Continuity Tax Advantages  Difficulty in withdrawing from agreement 6©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Limited Partnerships Limited Partnership – includes at least one Limited Liability Partnership – general partner and at All partners are actively least one limited partner involved but they have some form of limited liability. The amount of liability differs per state. ©Jose Luis Pelaez Inc/Blend Images/Jupiterimages Limited partners have limited liability. 7©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • The Name Game• Choosing a name depends on the type of business• Most sole proprietorships and general partnerships operate under their names• Must confirm name (or similar) is not being used• Many states required a DBA (doing business as) be filed• Corporations must be filed with the state and use special wording  Corporation, incorporated, company, limited or an abbreviation  The words bank or cooperative cannot be used unless approved by a regulatory agency ©Oliver Suckling/Shutterstock.comSource: Naming Your Business, Business Owner’s Toolkit website, http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P01_4800; Choosing the Right Name for My Corporation or Limited Liability Company, SCORE website, 8http://www.score.org/leg_choosing_name.html; Business Name Registration (Doing Business As), Business.gov website, http://www.business.gov/register/business-name/dba.html ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • Corporations: An Artificial Person• Most common type of corporation is a “C” corporation• A corporation is a legal entity, separate from its owners• Requirements vary by state, many states are “corporation-friendly”• Corporations are owned by stockholders• Articles of incorporations must be filed and corporate bylaws adopted 9©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Stock Ownership in Major Corporations 10©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Corporations: The Role of Board of Directors• Elected by stockholders to oversee the operation of their company and protect their interests• Oversee the operation of corporation and protect investors’ interest• Establish mission and set objectives• Rarely get involved in day-to-day management © Timm Schamberger/AFP/Getty Images• Responsible for monitoring the performance of the corporate officers 11©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Advantages and Disadvantages of CorporationsAdvantages: Disadvantages: • Limited Liability • Expense/complexity of formation and operation • Permanence • Double Taxation • Easy to Transfer Ownership • Paperwork and Regulation • Ability to Raise Capital • Complications when • Specialized Management operating in more than one state • Conflicts of Interest 12©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Other Types of Corporations: Same but Different TYPE KEY ADVANTAGE LIMITATIONS S Corp. •IRS does not tax earnings separately •No more than 100 stockholders •Stockholders have limited liability •Stockholders must be U.S. citizens or permanent residents Statutory •Not require to have a board or hold •Limited number of stockholders Close annual meetings •Stockholders must offer shares to Corp. •Owners can participate in management owner first before selling publicly while maintaining limited liability •Not all states allow this corporation type Nonprofit •Earnings are exempt from federal and •May have dues paying members but Corp. state income taxes no stockholders •Members/directors have limited liability •Can’t distribute dividends •Contributions made by individuals are tax- •Can’t make political donations deductible •Must keep accurate records to document tax-exemption 13©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Stockholders Get “Say on Pay”• Board of Directors’ job is to protect the voice of the stockholders• The Recession of 2008/2009 brought that oversight into question regarding CEO Pay• CEOs were enjoying high salaries and perks while laying off workers ©Arcady/ Shutterstock.com• Congress passed the Dodd-Frank Act which gives stockholders “some” voice in executive compensation 14Source: “New Law Has Effect on Pay for Executives” by David Nicklaus, St. Louis Post Dispatch, page B1, January 7, 2007; Dodd-Franks say on pay could impact executive pay by Ronald D. Orol, Marketwatch Website: http://www.marketwatch.com/story/new-say-on-pay-law-could-temper-ceo-pay-2010-08-26; Dodd-Frank: What it Means for Comp and Governance by Daniel J. Ryterband, Bloomberg BusinessWeek website: http://www.businessweek.com/managing/content/jul2010/ca20100716_567635.htm. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • Corporate Restructuring: Mergers & Acquisitions Mergers – two companies Acquisitions – when one agree to a combination of firm buys another equals Large corporations constantly look for ways to grow and achieve competitive advantage. ©Tom Merton/OJO Images/Jupiterimages 15©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Types of Mergers & Acquisitions 16©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • The Limited Liability Company: The New Kid on the Block Advantages: Disadvantages: • Limited Liability • Complexity of Formation • Tax Pass-Through • Franchise Taxes • Simplified Management and • Foreign Status in other States Operation • Limited to Select Industries • Flexible Ownership • State Law Differences 17©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Which Would You Choose?• Which business form would be best for each of the following businesses types?  T-Shirt/Screen Printing  Restaurant  Beauty Salon  Landscaping  Home/Office Cleaning• What if the business expanded, would you change the form?• Would you consider a franchise for any of these businesses?  What business form would you choose for a franchise? 18©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • © The Studio Dog/Photodisc/Getty Images Franchising: Proven Methods for a Price • The franchisee uses the brand name, trademark and practices of the franchisor • Growth in women franchises • Minority participation has increased under new initiatives • A well-established method for operating a business Source: Fit for Franchising, by Taylor Mallory, Pink Magazine June/July 2007, pinkmagazine.com website: http://www.pinkmagazine.com/franchise/women/2007/burzynski.html; Franchising Attracts More Women, Minorities by Julie Bennett, Startup Journal, accessed through Entrepreneur.com website: http://www.entrepreneur.com/franchises/franchisezone/startupjournal/article61324.html; Female Franchisors Few and Far Between by Julie M. Young, e-magnify.com website: https://www.e-magnify.com/resources_articlearchiveresults.asp?categoryID=18; Fit to Be a Franchisee: Many Businesswomen Choose Franchises that Connect With Personal Interests by Nancy Lacewell, June 7, 2006 Business First of Louisville website: http://www.bizjournals.com/louisville/stories/2006/05/22/story2.html.. Boosting Diversity in Franchising by Joan Szabo, December 5, 2006, Franchise Update website: http://www.franchise-update.com/article/188/. Bridging the Gap Between the Minority Community and the Franchising Industry, Minority Franchising 19 website: http://www.minorityfranchising.com/, accessed January 20, 2011; MinorityFran, International Franchise Association website: http://www.franchise.org/files/MinorityFran%20Broch%20by%20page.pdf, accessed January 20, 2011. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • Franchising in Foreign Markets• Franchising in foreign markets have shown great opportunities for growth• Markets are less intense and less saturated  McDonald’s 12,693  Subway 7,235 © Karen Cowled/Alamy  Curves 2,868• McDonald’s has slightly more franchises in foreign countries than the U.S. 20Source: Entrepreneur.com website pages for individual franchisors: http://www.entrepreneur.com/franchises/mcdonalds/282570-0.html; http://www.entrepreneur.com/franchises/subway/282839-0.html; http://www.entrepreneur.com/franchises/curves/282265-0.html, accessed January 22, 2011. ©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
  • Advantages and Disadvantages of Franchising Advantages: Disadvantages:  Costs  Less Risk  Lack of Control  Training and Support  Negative Halo Effect  Brand Recognition  Growth Challenges  Access to Funding  Restriction on Sale  Poor Execution 21©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Franchising Costs 22©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Some Franchisees Are Quite Happy When They Don’t Earn Profit  Many customers like doing business with nonprofit franchisees.  Nonprofit franchising is a good way for companies to be socially © David Lee/Alamy responsible and build goodwill. Ben & Jerry franchises its  Nonprofits can boost their PartnerShops to nonprofit corporations. fundraising efforts.Source: “The Ben & Jerry’s Law: Principles Before Profit,” by John Tozzi, Bloomberg Business Week, April 26, 2010, pp. 65-66. Ben & Jerry’s website, http://www.benjerry.com/scoop_shops/partnershops/, accessed August 2, 2009; Nonprofit OwnedFranchises: A Strategic Business Approach, prepared by Community Wealth Ventures and IFA Educational Foundation, March 2004 23©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.
  • Entering Into A Franchise Agreement• Know all the facts before signing the dotted line: Terms and Conditions   Fees and Other Payments  Training and Support  Specific Operational Requirements  Conflict Resolution  Assigned Territory• Franchisors must provide a Franchise Disclosure Document (FDD)• The Federal Trade Commission (FTC) require:  The FDD must be written in plain English  The franchisor must be given 14 days to review the FDD  The Franchisee should have a lawyer review the document 24©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, orposted to a publicly accessible website, in whole or in part.