Objectives
• Students will be able to :
– Investigate the three major forms of business
organization: sole proprietorships, partnerships,
and corporations.
– Offer a recommendation on their business type.
– Research and prepare a report on a successful
businessperson and the business she or he they
founded.
Chapter 8
Owning a Business
• Have you ever thought about starting your own
business?
• It is an idea worth considering, for several
reasons.
– People who start up a business gain the
opportunity to work at something that they
really love, the power to control their work
life, the ability to build something new, and
the potential to earn a lot of money.
Chapter 8
Three Types of Business Organization
• There are many different goods and services that a new
business can offer, but there are only a few ways to
organize a business.
• The vast majority of businesses start out as sole
proprietorships or partnerships.
• A third option is to set up a corporation.
• In the United States, about 70 percent of all businesses
are sole proprietorships, 20 percent are corporations
and the remaining 10 percent are partnerships.
Chapter 8
Three Types of Business Organization
• A sole proprietorship is a business that is
owned and managed by one individual
who receives all the profits and bears all
losses.
Chapter 8
Advantages of a Sole Proprietorship
• Easy and inexpensive to form: Costs are minimal, with
legal costs limited to obtaining the necessary license or
permits
• Complete control. Because you are the sole owner of the
business, you have complete control over all decisions. You
aren’t required to consult with anyone else when you need
to make decisions or want to make changes.
• Easy tax preparation. Your business is not taxed
separately, so it’s easy to fulfill the tax reporting
requirements for a sole proprietorship. The tax rates are
also the lowest of the business structures
Chapter 8
Disadvantages of a Proprietorship
• Unlimited personal liability. Because there is no legal
separation between you and your business, you can be
held personally liable for the debts and obligations of the
business. This risk extends to any liabilities incurred as a
result of employee actions.
• Hard to raise money. Sole proprietors often face
challenges when trying to raise money. Because you can’t
sell stock in the business, investors won't often invest.
Banks are also hesitant to lend to a sole proprietorship
because of a perceived lack of credibility when it comes to
repayment if the business fails.
• Heavy burden. The flipside of complete control is the
burden and pressure it can impose. You alone are
ultimately responsible for the successes and failures of your
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business.
Three Types of Business Organization
• A partnership a business that is owned
and managed by two or more individuals
who receive all profits and bear all
losses.
Chapter 8
Advantages of a Partnerships
• Easy and Inexpensive. Partnerships are generally an inexpensive and
easily formed business structure. The majority of time spent starting a
partnership often focuses on developing the partnership agreement.
• Shared Financial Commitment. In a partnership, each partner is
equally invested in the success of the business. Partnerships have the
advantage of pooling resources to obtain capital. This could be
beneficial in terms of securing credit, or by simply doubling your seed
money.
• Complementary Skills. A good partnership should reap the benefits of
being able to utilize the strengths, resources and expertise of each
partner.
• Partnership Incentives for Employees. Partnerships have an
employment advantage over other entities if they offer employees the
opportunity to become a partner. Partnership incentives often attract
highly motivated and qualified employees
Chapter 8
Disadvantages of a Partnerships
• Joint and Individual Liability. Partnerships retain full,
shared liability among the owners. Partners are not only
liable for their own actions, but also for the business debts
and decisions made by other partners. In addition, the
personal assets of all partners can be used to satisfy the
partnership’s debt.
• Disagreements Among Partners. With multiple partners,
there are bound to be disagreements. Partners should
consult each other on all decisions, make compromises,
and resolve disputes as amicably as possible
• Shared Profits. Each partner must share the successes
and profits of their business with the other partners.
Chapter 8
Three Types of Business Organization
• A corporation is a business that is owned
by stockholders and that has legal rights
and responsibilities as if it were a person.
Chapter 8
Advantages of a Corporation
• Limited Liability. When it comes to taking responsibility for business
debts and actions of a corporation, shareholders’ personal assets are
protected. Shareholders can generally only be held accountable for
their investment in stock of the company.
• Ability to Generate Capital. Corporations have an advantage when it
comes to raising capital for their business - the ability to raise funds
through the sale of stock.
• Corporate Tax Treatment. Corporations file taxes separately from their
owners. Owners of a corporation only pay taxes on corporate profits
paid to them in the form of salaries, bonuses, and dividends, while any
additional profits are awarded a corporate tax rate, which is usually
lower than a personal income tax rate.
• Attractive to Potential Employees. Corporations are generally able to
attract and hire high-quality and motivated employees because they
offer competitive benefits and the potential for partial ownership through
stock options
Chapter 8
Disadvantages of a Corporation
• Time and Money. Corporations are costly and timeconsuming ventures to start and operate. Incorporating
requires start-up, operating and tax costs that most other
structures do not require.
• Double Taxing. In some cases, corporations are taxed
twice - first, when the company makes a profit, and again
when dividends are paid to shareholders.
• Additional Paperwork. Because corporations are highly
regulated by federal, state, and in some cases local
agencies, there are increased paperwork and
recordkeeping burdens associated with this entity
Chapter 8
Business Organizations
• An entrepreneur is a person who starts
up a new business, taking on risk and
hoping to make a profit.
Chapter 8
Sweet Activity Opportunity
• Imagine you operate a consulting business, giving
advice to people who are thinking about starting or
expanding their own business.
• Read the Sweet Opportunities client stories, then
prepare a written recommendation as to which form of
business organization you think is best for each.
• As you prepare your report, keep in mind that starting a
business involves more than just finding something to
sell. The entrepreneur may need money needed for
buildings, equipment and other start-up expenses. He
or she must also know how to manage the business, or
find someone else to work as a manager.
Chapter 8
Sweet Success
• You have probably noticed that all of your
clients had opportunities in the “sweets”
industry. In fact, all of these are true stories
that ultimately led to very successful
business ventures for people selling
chocolate and chocolate-related products.
Their success was sweeter than most! Did
you recognize any of these entrepreneurs
and their businesses?
Chapter 8
Sweetness Project….
• Research and Read about one of the persons and their
business on your clients list. Then prepare a power
point to report your findings about what happened to
the entrepreneur and the business. Be sure to answer
the following questions:
– What has happened to the founder of the business?
– Is he or she still involved with the company?
– What other things has he or she done?
– Who owns the business?
– How has the business changed?
– Has the company been involved in any mergers or
acquisitions?
– What products does the company sell?
Chapter 8
Sweetness…..
• Client 1: Elise MacMillan and her brother Evan co-founded
The Chocolate Farm in Englewood, Colorado, in the late
1990s.
• Client 2: Milton Hershey broke ground for his chocolate
factory near Lancaster, PA in 1903. It was the beginning of
what would become Hershey Foods Corporation .
• Client 3: Forest Mars invited Bruce Murrie, an investment
banker and son of the Hershey company president, to be his
partner in M&M Ltd. The M&Ms we still eat today were first
sold to the public in 1941. The letters in "M&M" stand for
Mars & Murrie. Eventually, Murrie left the business but
Forest Mars became the owner of Mars, Inc.
• Client 4: Wally Amos launched the Famous Amos Cookie
Company in a Hollywood, CA storefront on Sunset
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8
Boulevard
in 1975.
Bitter Sweet
• Starting any business is risky. According to one report, two out of
three new businesses fail within their first four years. You can
reduce the risk – and increase your chance of sweet success—by
choosing the form of business ownership that best suits your new
business and personal interests.
• Things to consider when starting a business:
– The resources needed to start and expand the business.
– Your level of expertise for starting and managing a business.
– Your willingness to share decisions and profits.
– The level of liability you and any potential partners are willing to
accept.
– The tax implications of your choices.
– Your willingness to re-invest earnings into the business.
– How long you see yourself and any partners involved in the venture.
– Whether this venture is something you want to live on after you and
Chapter 8any partners are gone.