Different Types of Businesses

Forms of Business Ownership

Determining Type of Business Ownership

Other Considerations

UNIT 1.03

Sole Proprietor

Partnership

Corporation

TYPES OF BUSINESS

A business owned by one person

Most common legal form of ownership for new businesses

15-20 Million sole proprietors in United States

Accounts for 75% of businesses in US

SOLE PROPRIETOR

Pros:Control the entire businessKeep all of the profits Make decisions quicklyEasy to establishPay fewer taxes

ConsUnlimited liability

SOLE PROPRIETOR

A business owned by 2 or more persons who share responsibilities and profi ts/losses

Partnership Agreement (not fi led with the government) Name of the new business Amount each person is to invest in the business Amount each partner is to draw in salary/profit How profits/losses after salaries are paid will be shared in

proportion to each partner’s investment Responsibilities of the partners in the entity What will happen in the event of death of a partner(s)

3 Million business partnerships in United States

PARTNERSHIP

Pros:Combine talents and financial resourcesShare in responsibility of running the business and making decisions

Relatively easy to establishPays less taxes than a corporation

Cons:Unlimited liabilityPotential for disagreementsLoss of partner could mean end of business

PARTNERSHIP

A business organization that operates as a legal entity separate from its owners

Recognized as a person under the law

Articles of Incorporation

Sell Stock

Most revenue generated from this type of business

CORPORATION

Key Terms Stockholders/Shareholders: People who own stock in

a corporation

Board of Directors: A group of people elected by shareholders to guide a corporation

Corporate Offi cers: are the directors and senior level management of a corporation

Charter: a license to operate from that state

Proxy: ability of a shareholder to vote on the affairs of a company

CORPORATION

Pros:Limited liabilityShare of the profitsNo management responsibilityCan raise money by selling stockEasier to get credit

Cons:Legal red tape Increased tax burden

CORPORATION

BUSINESS OWNERSHIP DISTRIBUTION

the potential risks and liabilities of your business

the formalities and expenses involved in establishing and maintaining the various business structures

your income tax situation

your investment needs

DETERMINING TYPE OF BUSINESS OWNERSHIP

Franchise

Extractor

Producer

Processor

Manufacturer

Distribution

Service Firms

OTHER TYPES OF BUSINESSES

FRANCHISE

A contractual agreement to sell a company’s products or services in a designated geographic area

Franchisee: the person or group of people who have received permission from a parent company to sell its products or services

Franchisor: the parent company that grants permission to a person or group to sell its products or services

FRANCHISE

Average McDonald’s restaurant generates $2.5 million in sales annually

75% of restaurants worldwide are owned by franchisees To become a franchisee

Potential franchisees must have liquid assets of at least $750,000

Expect to pay between $1M - $2M in start up costs based on Geography and size of the restaurant Type of kitchen equipment Signage and décor Landscaping

40% of start-up costs paid in cash up front, rest can be financed

$45,000 franchise fee Monthly service fee of 4% of gross sales Pay monthly rent to corporate (approx. 8.5%)

MCDONALD’S

Pros: Name brand recognition Established method of doing business Access to centralized advertising Professional help in startup/training

Cons: High startup costs in purchasing rights to use the

business name Must follow corporate standards

FRANCHISE

Extractors: A business that grows products or takes raw materials from nature

Producers: A business that gathers raw products in their natural state

Processors: Businesses that change natural materials (raw goods) into a more finished form for manufacturers to process further i.e. paper mills, oil refineries, steel mills, etc.

OTHER TYPES OF BUSINESSES

Manufacturers: A business that takes an extractor’s products or raw materials and changes them into a form that consumers can use Industrial production i.e. General Motors, GE, Dell, Intel

Service Firms: A business that does things for you instead of making products Intangible goods i.e. hospitality, banking, legal, logistics/delivery

OTHER TYPES OF BUSINESSES

Distributor: Wholesaler

A middle firm that assists with distribution activities between businesses

The sale of goods to anyone other than a standard consumer Often sold in bulk/at a discount and not typically a name

consumers would recognize McLane Company

HQ in Temple, TX $47 Billion 2015 revenues 20,545 employees 39 grocery and foodservice distribution centers across the country Proves grocery and foodservices to convenience stores, drug stores,

restaurants

Retailer A business that sells directly to the consumer Purchases can be made in-store or on-line

HEB, Gap, Macy’s, Best Buy, Barnes & Noble

OTHER TYPES OF BUSINESSES

EXAMPLE OF PROCESS FLOW