5 - 1 Ch, 5: Forms of Business Ownership. 5 - 2 Ch, 5: Forms of Business Ownership Choosing a Form...

5 - 1Ch, 5: Forms of Business Ownership

5 - 2Ch, 5: Forms of Business Ownership

Choosing a Form of Ownership

There is no one “best” form of ownership. The best form of ownership depends on an

entrepreneur’s particular situation. Key: Understanding the characteristics of

each form of ownership and how well they match an entrepreneur’s business and personal circumstances.

5 - 3Ch, 5: Forms of Business Ownership

Factors Affecting the Choice Tax considerations Liability exposure Start-up and future capital requirements Control Managerial ability Business goals Management succession plans Cost of formation

5 - 4Ch, 5: Forms of Business Ownership

Major Forms of Ownership

Sole Proprietorship (Ownership) General Partnership Limited Partnership Corporation Joint Venture

Forms of Business Ownership

Businesses owned and operated by one individual; the most common form of business organization in the United States. Usually employing less than 50 people.

Sole Proprietorship

5 - 6Ch, 5: Forms of Business Ownership

Advantages of the Sole Proprietorship

Simple to create Least costly form to begin Profit incentive Total decision making authority No special legal restrictions Easy to discontinue

5 - 7Ch, 5: Forms of Business Ownership

Disadvantages of the Sole Proprietorship

Unlimited personal liability Limited skills and capabilities Feelings of isolation Limited access to capital Lack of continuity of the business

5 - 8Ch, 5: Forms of Business Ownership

Partnership

An association of two or more people who co-own a business for the purpose of making a profit.

Always wise to create a partnership agreement.

The best partnerships are built on trust and respect.

5 - 9Ch, 5: Forms of Business Ownership

Types of Partners General partnershipA partnership that involves a complete sharing in

both the management and the liability of the business

Example: Lawyers, accountants, architects

Limited partnershipA business organization that has at least one

general partner, who assumes unlimited liability, and at least one limited partner(usually investors) whose liability is limited to his or her investment in the business.

Example: real estate partnership

Types of Partners

Two types of limited partners:

1.Silent partners – not active in a business but are generally known to be members of the partnership

2.Sleeping partners – neither active nor generally known to be associated with the business

5 - 10Ch, 5: Forms of Business Ownership

5 - 11Ch, 5: Forms of Business Ownership

Advantages of the Partnership Easy to establish Complementary skills of partners Division of profits Larger pool of capital Ability to attract limited partners Minimal government regulation Flexibility Taxation

5 - 12Ch, 5: Forms of Business Ownership

Disadvantages of the Partnership

Unlimited liability of at least one partner Capital accumulation Difficulty in disposing of partnership interest

without dissolving the partnership Potential for personality and authority conflicts Partners bound by law of agency

Corporations

A Corporation is created (incorporated) under the laws of the state in which it incorporates. The individuals creating the corporation are called incorporators such as KİPA, KOÇTAŞ…etc.

Creating a Corporation

5 - 14Ch, 5: Forms of Business Ownership

Corporation

A separate legal entity from its owners. Types of corporations:

►Domestic – a corporation doing business in the state in which it is incorporated.

►Foreign – a corporation doing business in a state other than the state in which it is incorporated.

►Alien – a corporation formed in another country but doing business in the Turkey

5 - 15Ch, 5: Forms of Business Ownership

Corporation

Types of corporations:► Publicly held – a corporation that has a

large number of shareholders and whose stock usually is traded on one of the large stock exchanges.

► Closely held – a corporation in which shares are controlled by a relatively small number of people, often family members, relatives, or friends.

5 - 16Ch, 5: Forms of Business Ownership

Advantages of the Corporation

Limited liability of stockholders Ability to attract capital Ability to continue indefinitely Transferable ownership

5 - 17Ch, 5: Forms of Business Ownership

Disadvantages of the Corporation

Cost and time of incorporation process Double taxation Potential for diminished managerial

incentives Legal requirements and regulatory “red tape” Potential loss of control by founder(s)

5 - 18Ch, 5: Forms of Business Ownership

The Professional Corporation

Designed for professions – lawyers, doctors, dentists, accountants and other professionals

Created in the same manner as a corporation Identified by the abbreviations:

► P.C. – Professional Corporation

► P.A. – Professional Association

► S.C. – Service Corporation

Ch, 5: Forms of Business Ownership

The Joint Venture

Much like a partnership, but it:

► Is formed for a specific purpose

► Has a beginning and an end

5 - 19

5 - 20Ch, 5: Forms of Business Ownership

Conclusion

The “right” choice of the form of ownership is unique to every entrepreneur and their business.

Each form has advantages and disadvantages.

The entrepreneur must be thoughtful and strategic about this important decision.

5 - 21

Assume that you are planning to open a bookstore across our university. What kind of an ownership would you prefer for your business? Why? Discuss your answer by referring to the advantages and disadvantages of the “business ownership” you prefer.

5 - 22Ch, 5: Forms of Business Ownership

Please discover the meaning of shareholder &

List your shareholders in your bookstore

Please do not use computers for your homewors. It must be written by hand. Do not spent more than one page for each answer

6 - 23Ch. 6: Franchising and the Entrepreneur

6 - 24Ch. 6: Franchising and the Entrepreneur

Franchising

A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchisor) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system.

6 - 25Ch. 6: Franchising and the Entrepreneur

Franchising Basics

Franchisee gets the right to use all of the elements of a fully integrated business operation.

Essence of what franchisees purchase from the franchisors: Experience.

Key Question: “What can a franchise do for me that I cannot do for myself?”

6 - 26Ch. 6: Franchising and the Entrepreneur

Benefits of Franchising

A business system Management training and support

Start-up Ongoing

Brand name appeal “Cloning”

Standardized quality of goods and services

6 - 27Ch. 6: Franchising and the Entrepreneur

Benefits of Franchising

National advertising programs Franchisees contribute 1% to 5% of

sales. Financial assistance

About 20% of franchisors offer direct financial assistance to franchisees.

Proven products and business formats

6 - 28Ch. 6: Franchising and the Entrepreneur

Benefits of Franchising

Centralized buying power Site selection and regional protection

Important issue: Regional encroachment (Violation)

Greater chance for success

6 - 29Ch. 6: Franchising and the Entrepreneur

Drawbacks of Franchising

Franchise fees and ongoing royalties Strict obedience to standardized operationsStrict obedience to standardized operations Restrictions on purchasingRestrictions on purchasing

Approved suppliers onlyApproved suppliers only

6 - 30Ch. 6: Franchising and the Entrepreneur

Drawbacks of Franchising

Limited product line Contract terms and renewal

Average term = 10.3 years Unsatisfactory training programs Market overload Less freedom –

“No independence” “Happy prisoners”

(continued)

6 - 31Ch. 6: Franchising and the Entrepreneur

Ten Myths of Franchising

1. Franchising is the safest way to go into business because franchises never fail.

2. I’ll be able to open my franchise for less money than the franchiser estimates.

3. The bigger the franchise organization, the more successful I’ll be.

4. I’ll use 80 percent of the franchiser’s business system, but I’ll improve upon by substituting my experience and know-how.

6 - 32Ch. 6: Franchising and the Entrepreneur

Ten Myths of Franchising

5. All franchises are the same.

6. I don’t have to be a hands-on manager. I can be an absentee owner and still be very successful.

7. Anyone can be a satisfied, successful franchise owner.

(continued)(continued)

6 - 33Ch. 6: Franchising and the Entrepreneur

Ten Myths of Franchising

8. Franchising is the cheapest way to get into business for yourself.

9. The franchiser will solve my business problems for me; after all, that’s why I pay an ongoing royalty fee.

10. Once I open my franchise, I’ll be able to run things the way I want to.

(continued)(continued)

6 - 34Ch. 6: Franchising and the Entrepreneur

The Right Way to Buy a Franchise

Evaluate yourself - What do you like and dislike? Research your market. Consider your franchise options. Get a copy of the agreement and read it! Talk to existing franchisees. Ask the franchiser some tough questions. Make your choice.

6 - 35Ch. 6: Franchising and the Entrepreneur

Factors That Make a Franchise Attractive

Unique concept or marketing approach Profitability Registered trademark Business system that works Solid training program Affordability Positive relationship with franchisees

In addition to the text

6 - 36Ch. 6: Franchising and the Entrepreneur

Conclusion

Franchising:

► Is a key part of the small business sector

► Increases the chance of business success for the entrepreneur

► Growth continues