electronic flashcards why might a person want to own their own business?
TRANSCRIPT
Electronic Flashcards
Why might a person want to own their own business?
A chance to be in control
A chance to make decisions
A chance to invest and make $$ -- profit
Read more….
Thousands of people are business owners; however,
the amount of control they have, how decisions are made, the sources of money for the business, and control over profits –
depends on the form of ownership.
How many major forms of business ownerships are there?
Three (3)
What are those three (3) forms of business ownership?
The (3) forms of business ownership are…
Proprietorship; aka sole proprietorship (click to define)
Partnership (click to define)
Corporation (click to define)
A proprietorship is…
A business owned and operated by just one person
7 Characteristics?
Return to Major Forms
A partnership is…
A business owned and controlled by two or more (> = 2) people who entered into an agreement
4 Characteristics?
Return to Major Forms
What is that agreement called?
PARTNERSHIP AGREEMENT
Consists of?
Return to Partnership
What does a partnership agreement consist of?
Details the rules of procedures that guide ownership and operation.
Identifies the business name and investment/contribution of each partner
Shows how profit/losses will be divided
Defines authority, duties, and responsibilities
Details how the partnership can be dissolved (ended)
Return to Partnership
A corporation is…
A separate legal entity (body) formed by documents filed with a state; treated as an “individual” by governments
7 Characteristics?
Return to Major Forms
Characteristics of a Proprietorship (7) Easiest to start and end Few legal requirements Capital needs are minimal Sole control over all business activities Owner receives all profits Owner responsible for all business debts Personal/business assets can be claimed
to pay off business debts
Return to Major Forms
Characteristics of a Partnership (4) Quite easy to start All owners share responsibilities for key
business decisions and functions Capital investments and profits are
shared based on agreement Each partner is liable for the debts of the
business, if it fails
Return to Major Forms
Characteristics of a Corporation (7) Owned by one or more shareholders
(persons who buy shares of stock) Managed by a board of directors (BoD) More difficult to form Must meet more legal requirements All owners do not have direct involvement
in decisions Owners will not have access to profits unless
BoD approves dividends (profits shared) Liability (risk) of stockholders is limited to
only amount invested
What are the advantages of choosing to operate your business as a proprietorship?
Freedom of working for yourself (NO BOSS)
Total control of the business Easy startup; minimal capital needed No business name needed; minimal
gov’t regulations Business expenses can be used to
reduce taxable income
What is taxable income?
For example, if a proprietor earned $40,000 a year and generate a profit of $5,000 from the business,
the government will expect a % of that $45,000 to be paid in taxes; 25% of $45K = $11,250 income taxes, but
the business expenses = $2,000, then only $43,000 of earned income would be taxable; taxes only $10,750.
$500 savings in taxes
Resume Review
What are the disadvantages of choosing to operate your business as a proprietorship?
The need to obtain required licenses and permits
Limited capital and business skills
Taxes will have to be paid on profits
All risk is placed on the owner
In the eyes of the law, the business and owner are the same
What are the advantages of choosing to operate your business as a partnership?
Two or more people can contribute to the investment needed to start the business
Added expertise to the business
Good for people who share an idea for a business and work well together
What are the disadvantages of choosing to operate your business as a partnership?
No protection for personal assets in case of debt
Each partner is responsible for decisions made by all other partners
Each partner can lose much more than the original amount invested
If partner chooses to leave the partnership or dies, the partnership normally is dissolved.
What are the advantages of choosing to operate your business as a corporation?
Liability of any owner is limited to amount invested.
Amount of the business debt doesn’t matter
Can invest, make a profit, and NOT take part in the day-to-day management and operation
What are the disadvantages of choosing to operate your business as a corporation?
Decision making is shared by managers, the BoD, and shareholders
More records are required and more laws that regulate operation
Investors pay taxes on individual earnings from stocks; company must pay corporate taxes on profit because it is treated as an “individual.”
What other specialized forms of business ownership exists?
Specialized Partnerships and Corporations
Limited liability partnership (Click to define)
Joint venture (Click to define)
S-corporation (Click to define)
Limited liability company (LLC) (Click to define)
Non-profit corporation (Click to define)
Cooperatives and Franchises (Click to define)
A limited liability partnership is …
a partnership that identifies some investors who cannot lose more than the amount of their investment, but they are not allowed to participate in the day-to-day management of the business.
is difficult and costly to setup
Return to Special Forms
A joint venture is …
a unique business organized by two or more other businesses to operate for a limited time and for a specific project.
Return to Special Forms
An S-corporation is …
offers the limited liability of a corporation; all income is pass through to the owners based on their investment and is taxed on their individual tax returns.
Return to Special Forms
An limited liability company (LLC) is …
a combination of a partnership and corporation; provides liability protection for owners
simpler requirements than corporation; document like partnership agreement must be developed
Return to Special Forms
A non-profit corporation is …
a group of people who join to do some activity that benefits the public.
works in areas such as education, health care, charity, or the arts
capital is generated by grants and donations
must be organized as a corporation
Return to Special Forms
A cooperative is … a company owned by members, serves
their needs, and is managed in their interest.
A franchise is… a written contract granting permission
to operate a business to sell g/s in a set way.
Read more…
Return to Special Forms
What is a Board of Directors?
The people who will make major policy and financial decisions for the business
Return to Corporation
Cooperatives and Franchises
Cooperatives
Consumers form co-ops to purchases g/s cheaper as a group Businesses form co-ops to market the g/s needed by its members
Larger numbers = greater bargaining power Read more…
Cooperatives and Franchises
Franchises
The company that owns the g/s and grants the rights to another business is known as the franchiser (i.e.,employer); examples – McDonald’s, Jiffy Lube, Merry Maids, etc. The company purchasing the rights to run the business is the franchisee (i.e., employee).
Franchisee pays a fee and % of profit to franchiser.
END of REVIEW
What are the legal requirements?
• Must file articles of incorporation with the state in which it will operate • Must create corporate bylaws
Return to Corporation
What is an article of incorporation?
A written legal document that defines ownership and operating procedures
and conditions for the business
Return to Legal Reqs
What are corporate bylaws?
Details that are the operating procedures for the corporation
Return to Corporation
THE END
You did it!!!
Give yourself a hand.