B. OVERVIEW OF SMALL
3.00 Explain the legal
environment of small business.
3.01 Compare forms of business
(The logos used in this PowerPoint were copied directly from corporate websites. They
have not been altered in any way.)
Three basic forms of business
•A business owned and
operated by one
Advantages of sole proprietorships
•Easy and inexpensive to create.
•Owner makes all business decisions.
•Owner receives all profits.
•Least regulated form of business
•Business itself pays no taxes.
Disadvantages of sole proprietorships
•Owner has unlimited liability for all debts and
actions of the
business. Unlimited liability:
The debts of the business may be paid
A form of business
ownership in which
two or more people
share the assets,
liabilities, and profits.
Types of Partnerships
•General partnership: A partnership in which all
partners have unlimited personal liability and
full responsibility for the management
•Limited partnership: A partnership in which the
Advantages of partnerships
•Shared decision making and management
•Easier to raise capital than in a sole
•Few government regulations.
Disadvantages of partnerships
•Partnerships may lead to disagreements.
•Some entrepreneurs are not willing to share
•Some entrepreneurs fear being held legally
A business that is chartered by a
state and legally operates apart
from its owners.
Types of corporations
•C-corporation: The most common form of
corporation. It protects the entrepreneur from
personally sued for the actions and
debts of the
•Subchapter S corporation: A corporation that is
Advantages of corporations
•Can raise money by issuing shares of stock.
•Offers owners limited liability. Limited
liable only up to the amount of
•People can easily enter or leave the business
Disadvantages of corporations
•Legal assistance is needed to start a
•Start-up is costly.
•Corporations are subject to more
regulations than partnerships
Alternate approaches to starting a
•Buy an existing business.
•Enter a family business.
•Own a franchise business.
Advantages of buying an existing
•Existing businesses already have
customers, suppliers, and
•Seller of the business may be willing to
Disadvantages of buying an existing
•Business may be for sale because it is not
•Problems may be inherited with the
Advantages to entering a family
•There is a certain sense of pride and
accomplishment that comes from being
part of a
•A business can remain in the family for
Disadvantages to entering a family business
•Senior management positions are often held by
family members who may not be the
•It may be difficult to retain qualified employees
who are not members of the family.
•Family politics may affect decisions regarding the
Own a franchise business
Franchise: A legal agreement that
gives an individual the right to market a
company’s products or services in a
Franchisee: A person who purchases a
Franchisor: The person or company who
sells a franchise.
Initial franchise fee: The fee the franchise
owner pays in return for the right to run
Advantages of purchasing a franchise
An established product or service is being
Franchisors often offer management, technical,
and other assistance.
Equipment and supplies may be less
Disadvantages of purchasing a franchise
The cost of franchises may be high, which can
Franchise owners are limited in the decisions they
can make regarding the business.
The performance of other franchises impact on the