Forms of Business


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Forms of Business

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